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A REVISION 
OF THE TREATY 

BEING A SEQUEL TO 

THE ECONOMIC CONSEQUENCES 
OF THE PEACE 



BY 

JOHN MAYNARD KEYNES, C.B. 

FELLOW OF king's COLLEGE, CAMBRIDGE 



a 



NEW YORK 

HARCOURT, BRACE AND COMPANY 

1922 



^ 






y(^ 






6 

1^ 



COPYRIGHT, 1922, BY 
HARCOURT, BRACE AND COMPANY, INC. 






PRINTED IN THE U. S. A BY 

THE OUINN • BOOEN COMPANY 

RAHWAY. N. J. 



A^ ■•■■ 






PREFACE 

The Economic Consequences of the Peace, which 
I published in December 1919, has been reprinted 
from time to time without revision or correction. 
So much has come to our knowledge since then, 
that a revised edition of that book would be out 
of place. I have thought it better, therefore, to 
leave it unaltered, and to collect together in this 
Sequel the corrections and additions which the 
flow of events makes necessary, together with my 
reflections on the present facts. 

But this book is strictly what it represents it- 
self to be — a Sequel; I might almost have said an 
Appendix. I have nothing very new to say on 
the fundamental issues. Some of the Remedies 
which I proposed two years ago are now every- 
body's commonplaces, and I have nothing startling 
to add to them. My object is a strictly limited 
one, namely to provide facts and materials for an 
intelligent review of the Reparation Problem ^s it 
now is. 

''The great thing about this wood," said M. 
Clemenceau of his pine forest in La Vendee, "is 
that, here, tliere is not the slightest chance of 



VI PEEFACE 



meeting Lloyd George or President Wilson. 
Nothing here but the squirrels." I wish that I 
could claim the same advantages for this book. 



J. M. Keynes. 



King's College, Cambeidge, 
December 1921. 



CONTENTS 
CHAPTER I 

FACE 

The State of Opinion i. . 3 

CHAPTER II 

Feom the Ratification of the Treaty of Veesailles to 

THE Second Ultimatum of London 11 

ExcuESUS I. — Coal 44 

ExcTTESus II. — The Legality of Occupying Gee- 
many East of the Rhine 57 

CHAPTER III 

The Burden of the London Settlement . ... 64 
Excursus III. — The Wiesbaden Agreement . ;. 92 
Excursus IV. — The Mark Exchange . . . 100 

CHAPTER IV 

The Reparation Bill 106 

Excursus V. — Receipts and lixPENSES prior to 

May 1, 1921 131 

Excursus VI. — The Division of Receipts be- 
tween THE Allies 138 

CHAPTER V 
The Legality of the Claim for Pensions . . . .144 

CHAPTER VI 

Reparation, Inter- Ally Debt, and International Trade . 163 

vii 



VIU CONTENTS 



CHAPTER VII 



PACE 



The Revision of the Teeaty and the Settlement of 

EuEOPE 179 



APPENDIX OF DOCUMENTS 

I. Summary of Spa Agreement (July 1920) 
II. The Decisions of Paris (January 1921) . 

III. The Claims Submitted to the Reparation Commis 

sioN (February 1921) 

IV. The First Ultimatum of London (March 1921) 
V. The German Counter-Proposal (April 1921) . 

VI. The Reparation Commission's Assessment (April 

1921) 

VII. The Second Ultimatum of London (May 1921) 
VIII. Summary of the Wiesbaden Agreement (October 
1921) 

IX. Tables of Inter-Goveknmental Indebtedness . 



203 
207 

210 
213 

215 

219 
219 

228 
238 



INDEX ......... .., . . . 240 



A REVISION OF THE TREATY 

BEING A SEQUEL TO 
THE ECONOMIC CONSEQUENCES OF THE PEACE 



CHAPTER I 

The State of Opinion 

It is the method of modern statesmen to talk as 
much folly as the public demand and to practise 
no more of it than is compatible with what they 
have said, trusting that such folly in action as 
must wait on folly in word will soon disclose itself 
as such, and furnish an opportunity for slipping 
back into wisdom, — the Montessori system for the 
child, the Public. He who contradicts this child 
will soon give place to other tutors. Praise, there- 
fore, the beauty of the flames he wishes to touch, 
the music of the breaking toy ; even urge him for- 
ward ; yet waiting with vigilant care, the wise and 
kindly savior of Society, for the right moment to 
snatch him back, just singed and now attentive. 

I can conceive for this terrifying statesmanship 
a plausible defense. Mr. Lloyd George took the 
responsibility for a Treaty of Peace, which was 
not wise, which was partly impossible, and which 
endangered the life of Europe. He may defend 
himself by saying that he knew that it was not 
wise and was partly impossible and endangered 
the life of Europe; but that public passions and 
public ignorance play a part in the world of which 

3 



4 A EEVISION" OF THE TREATY 

he who aspires to lead a democracy must take ac- 
count; that the Peace of Versailles was the best 
momentary settlement which the demands of the 
mob and the characters of the chief actors con- 
joined to permit; and for the life of Europe, that 
he has spent his skill and strength for two years 
in avoiding or moderating the dangers. 

Such claims would be partly true and cannot be 
brushed away. The private history of the Peace 
Conference, as it has been disclosed by French 
and American participators, displays Mr. Lloyd 
George in a partly favorable light, generally striv- 
ing against the excesses of the Treaty and doing 
what he could, short of risking a personal de- 
feat. The public history of the two years which 
have followed it exhibit him as protecting Europe 
from as many of the evil consequences of his own 
Treaty, as it lay in his power to prevent, with a 
craft few could have bettered, preserving the 
peace, though not the prosperity, of Europe, sel- 
dom expressing the truth, yet often acting under 
its influence. He would claim, therefore, that by 
devious paths, a faithful servant of the possible, 
he was serving Man. 

He may judge rightly that this is the best of 
which a democracy is capable, — to be jockeyed, 
humbugged, cajoled along the right road. A pref- 
erence for truth or for sincerity as a method may 
be a prejudice based on some esthetic or personal 



THE STATE OF OPINION" O 

standard, inconsistent, in politics, with practical 
good. 

"We cannot yet tell. Even the public learns by- 
experience. Will the charm work still, when the 
stock of statesmen's credibility, accumulated be- 
fore these times, is getting exhausted! 

In any event, private individuals are not under 
the same obligation as Cabinet Ministers to sac- 
rifice veracity to the public weal. It is a per- 
mitted self-indulgence for a private person to 
speak and write freely. Perhaps it may even con- 
tribute one ingredient to the congeries of things 
which the wands of statesmen cause to work to- 
gether, so marvelously, for our ultimate good. 

For these reasons I do not admit error in hav- 
ing based The Economic Consequences of the 
Peace on a literal interpretation of the Treaty of 
Versailles, or in having examined the results of 
actually carrying it out. I argued that much of 
it was impossible; but I do not agree with many 
critics, who held that, for this very reason, it was 
also harmless. Inside opinion accepted from the V 
beginning many of my main conclusions about 
the Treaty.^ But it was not therefore unimpor- 

^ "Its merely colorable fulfilment of solemn contracts with a 
defeated nation, its timorous failure to reckon with economic 
realities," as Professor Allyn Young wrote in a review of my 
book. Yet Professor Young has thought right, nevertheless, to 
make himself a partial apologist of the Treaty, and to describe 
it as "a forward-looking document." 



6 A REVISION OP THE TREATY 

tant that outside opinion should accept them also. 

For there are, in the present times, two opin- 
ions ; not, as in former ages, the true and the false, 
but the outside and the inside; the opinion of the 
public voiced by the politicians and the news- 
papers, and the opinion of the politicians, the jour- 
nalists and the civil servants, upstairs and back- 
stairs and behind-stairs, expressed in limited cir- 
cles. In time of war it became a patriotic duty 
that the two opinions should be as different as pos- 
sible; and some seem to think it so still. 

This is not entirely new. But there has been a 
change. Some say that Mr. Gladstone was a 
hypocrite; yet if so, he dropped no mask in pri- 
vate life. The high tragedians, who once ranted 
in the Parliaments of the world, continued it at 
supper afterwards. But appearances can no 
longer be kept up behind the scenes. The paint 
of public life, if it is ruddy enough to cross the 
flaring footlights of to-day, cannot be worn in 
private, — which makes a great difference to the 
psychology of the actors themselves. The mul- 
titude which lives in the auditorium of the world 
needs something larger than life and plainer than 
the truth. Sound itself travels too slowly in this 
vast theater, and a true word no longer holds 
when its broken echoes have reached the furthest 
listener 



THE STATE OF OPINION 9 

enough intellect to understand the inside opinion, 
enough sympathy to detect the inner outside opin- 
ion, and enough brass to express the outer outside 
opinion. 

Whether this account is true or fanciful, there 
can be no doubt as to the inunense change in pub- 
lic sentiment over the past two years. The desire 
for a quiet life, for reduced commitments, for 
comfortable terms with our neighbors is now para- 
mount. The megalomania of war has passed 
away, and every one wishes to conform himself 
with the facts. For these reasons the Repara- 
tion Chapter of the Treaty of Versailles is 
crumbling. There is little prospect now of the 
disastrous consequences of its fulfilment. 

I undertake in the following chapters a double 
task, beginning with a chronicle of events and a 
statement of the present facts, and concluding 
with proposals of what we ought to do. I nat- 
urally attach primary importance to the latter. 
But it is not only of historical interest to glance 
at the recent past. If we look back a little closely 
on the two years which have just elapsed (and the 
general memory unaided is now so weak that we 
know the past little better than the future), we 
shall be chiefly struck, I think, by the large ele- 
ment of injurious make-believe. My concluding 
proposals assume that this element of make-be- 



10 A EEVISION" OF THE TREATY 

lieve has ceased to be politically necessary; that 
outside opinion is now ready for inside opinion to 
disclose, and act upon, its secret convictions ; and 
that it is no longer an act of futile indiscretion to 
speak sensibly in public. 



CHAPTER n 

Fkom the Ratification" of the Teeaty op 

Versailles to the Second Ultimatum 

OF London 

I. The Execution of the Treaty and the Plebiscites 

The Treaty of Versailles was ratified on January 
10, 1920, and except in tlie plebiscite areas its ter- 
ritorial provisions came into force on that date. 
The Slesvig plebiscite (February and March, 
1920) awarded the north to Denmark and the south 
to Germany, in each case by a decisive majority. 
The East Prussian plebiscite (July, 1920) showed 
an overwhelming vote for Germany. The Upper 
Silesian plebiscite (March, 1921) yielded a ma- 
jority of nearly two to one in favor of Germany 
for the province as a whole,^ but a majority for 
Poland in certain areas of the south and east. On 
the basis of this vote, and having regard to the 
industrial unity of certain disputed areas, the 
principal Allies, with the exception of France, 

* More exactly, out of 1,220,000 entitled to vote and 1,186,000 
actual voters, 707,000 votes or seven-elevenths were cast for 
Germany, and 479,000 votes or four-elevenths for Poland. Out 
of 1522 communes, 844 showed a majority for Germany and 678 
for Poland. The Polish voters were mainly rural, as is shown by 
the fact that in 36 towns Germany polled 267,000 votes against 
70,000 for Poland, and in the country 440,000 votes against 
409,000 for Poland. 

11 



12 A EEVISIOlNr OF THE TREATY 

were of opinion that, apart from the southeastern 
districts of Pless and Rybnik which, although they 
contain undeveloped coalfields of great impor- 
tance, are at present agricultural in character, 
nearly the whole of the province should be as- 
signed to Germany. Owing to the inability of 
France to accept this solution, the whole problem 
was referred to the League of Nations for final 
arbitration. This body bisected the industrial 
area in the interests of racial or nationalistic jus- 
tice; and introduced at the same time, in the en- 
deavor to avoid the consequences of this bisection, 
complicated economic provisions of doubtful effi- 
ciency in the interests of material prosperity. 
They limited these provisions to fifteen years, 
trusting perhaps that something will have oc- 
curred to revise their decision before the end of 
that time. Broadly speaking, the frontier has been 
drawn, entirely irrespective of economic consid- 
erations, so as to include as large as possible a 
proportion of German voters on one side of it and 
Polish voters on the other (although to achieve 
this result it has been thought necessary to as- 
sign two almost purely German towns, Kattowitz 
and Konigshiitte, to Poland). From this limited 
point of view the work may have been done fairly. 
But the Treaty had directed that economic and 
geographical considerations should be taken into 
account also. 



FROM TEEATY TO CONFEEENCE OF LONDON 13 

I do not intend to examine in detail the wisdom 
of this decision. It is believed in Germany that 
subterranean influence brought to bear by France 
contributed to the result. I doubt if this was a 
material factor, except that the officials of the 
League were naturally anxious, in the interests 
of the League itself, to produce a solution which 
would not be a fiasco through the members of the 
Council of the League failing to agree about it 
amongst themselves ; which inevitably imported a 
certain bias in favor of a solution acceptable to 
France. The decision raises, I think, much more 
fundamental doubts about this method of settling 
international affairs. 

Difficulties do not arise in simple cases. The 
League of Nations will be called in where there is 
a conflict between opposed and incommensurable 
claims. A good decision can only result by im- 
partial, disinterested, very well-informed and au- 
thoritative persons taking everything into ac- 
count. Since International Justice is dealing with 
vast organic units and not with a multitude of 
small units of which the individual particulari- 
ties are best ignored and left to average them- 
selves out, it cannot be the same thing as the cut- 
and-dried lawyer's justice of the municipal court. 
It will be a dangerous practice, therefore, to en- 
trust the settlement of the ancient conflicts now 
inherent in the tangled structure of Europe, to 



14 A REVISION OF THE TREATY 

elderly gentlemen from South America and the 
far Asiatic East, who will deem it their duty to 
extract a strict legal interpretation from the 
available signed documents, — ^who will, that is to 
say, take account of as few things as possible, in 
an excusable search for a simplicity which is not 
there. That would only give us more judgments 
of Solomon with the ass's ears, a Solomon with 
the bandaged eyes of law, who, when he says ' * Di- 
vide ye the living child in twain," means it. 

The Wilsonian dogma, which exalts and digni- 
fies the divisions of race and nationality above the 
bonds of trade and culture, and guarantees fron- 
tiers but not happiness, is deeply embedded in the 
conception of the League of Nations as at present 
constituted. It yields us the paradox that the 
first experiment in international government 
should exert its influence in the direction of inten- 
sifying nationalism. 

These parenthetic reflections have arisen from 
the fact that from a certain limited point of view 
the Council of the League may be able to advance 
a good case in favor of its decision. My criti- 
cism strikes more deeply than would a mere al- 
legation of partiality. 

With the conclusion of the plebiscites the fron- 
tiers of Germany were complete. 

In January 1920 Holland was called on to sur- 
render the Kaiser; and, to the scarcely concealed 



FKOM TREATY TO CONFERENCE OF LONDON 15 

relief of the Governments concerned, she duly re- 
fused (January 23, 1920). In the same month the 
surrender of some thousands of "war criminals" 
was claimed, but, in the face of a passionate pro- 
test from Germany, was not insisted on. It was 
arranged instead that, in the first instance at 
least, only a limited number of cases should be 
pursued, not before Allied Courts, as provided by 
the Treaty, but before the High Court of Leipzig. 
Some such cases have been tried; and now, by 
tacit consent, we hear no more about it. 

On March 13, 1920, an outbreak by the reaction- 
aries in Berlin (the Kapp "Putsch") resulted in 
their holding the capital for five days and in the 
flight of the Ebert Government to Dresden. The 
defeat of this outbreak, largely by means of the 
weapon of the general strike (the first success of 
which was, it is curious to note, in defense of es- 
tablished order), was followed by Communist dis- 
turbances in Westphalia and the Ruhr. In deal- 
ing with this second outbreak, the German Govern- 
ment despatched more troops into the district than 
was permissible under the Treaty, with the re- 
sult that France seized the opportunity, without 
the concurrence of her Allies, of occupying Frank- 
furt (April 6, 1920) and Darmstadt, this being the 
immediate occasion of the first of the series of 
Allied Conferences recorded below — the Confer- 
ence of San Remo. 



16 A REVISION OF THE TREATY 

These events, and also doubts as to the capac- 
ity of the Central German Government to enforce 
its authority in Bavaria, led to successive post- 
ponements of the completion of disarmament, due 
under the Treaty for March 31, 1920, until its final 
enforcement by the London Ultimatum of May 5, 
1921. 

There remains Reparation, the chief subject of 
the chronicle which follows. In the course of 
1920 Germany carried out certain specific deliv- 
eries and restitutions prescribed by the Treaty. 
A vast quantity of identifiable property, removed 
from France and Belgium, was duly restored to 
its owners.^ The Mercantile Marine was surren- 
dered. Some dyestuff s were delivered, and a cer- 
tain quantity of coal. But Germany paid no cash, 
and the real problem of Reparation was still post- 
poned.^ 

With the Conferences of the spring and summer 
of 1920 there began the long series of attempts 
to modify the impossibilities of the Treaty and 
to mold it into workable form. 

^ Up to May 31, 1920, securities and other identifiable assets to 

the value of 8300 million francs and 500,000 tons of machinery 

\ and raw material had been restored to France {Report of Finance 

f\ Commission of French Chamber, June 14, 1920), also 445,000 head 

of live stock. 

° Up to May, 1921, the cash receipts of the Reparation Com- 
mission amounted to no more than 124,000,000 gold marks. 



FEOM TREATY TO CONFEEENCE OF LONDON 17 

II. The Conferences of San Remo {April 19-26, 
1920), Hythe {May 15 and June 19, 1920), 
Boulogne {June 21, 22, 1920), Brussels {July 
2-3, 1920), and Spa {July 5-16, 1920) 

It is difficult to keep distinct the series of a 
dozen discussions between the Premiers of the 
Allied Powers which occupied the year from April 
1920 to April 1921. The result of each Confer- 
ence was generally abortive, but the total effect 
was cumulative ; and by gradual stages the project 
of revising the Treaty gained ground in every 
quarter. The Conferences furnish an extraordi- 
nary example of Mr. Lloyd George 's methods. At 
each of them he pushed the French as far as he 
could, but not as far as he wanted; and then came 
home to acclaim the settlement provisionally 
reached (and destined to be changed a month 
later) as an expression of complete accord between 
himself and his French colleague, as a nearly per- 
fect embodiment of wisdom, and as a settlement 
which Germany would be well advised to accept 
as final, adding about every third time that, if she 
did not, he would support the invasion of her ter- 
ritory. As time went on, his reputation with the 
French was not improved ; yet he steadily gained 
his object, — though this may be ascribed not to 
the superiority of the method as such, but to facts 
being implacably on his side. 



18 A REVISION OF THE TREATY 

The first of the series, the Conference of San 
Remo (April 19-26, 1920), was held under the 
presidency of the Italian Premier, Signer Nitti, 
who did not conceal his desire to revise the Treaty. 
M. Millerand stood, of course, for its integrity, 
whilst Mr. Lloyd George (according to The Times 
of that date) occupied a middle position. Since 
it was evident that the French would not then ac- 
cept any new formula, Mr. Lloyd George concen- 
trated his forces on arranging for a discussion 
face to face between the Supreme Council and the 
German Government, such a meeting, extraordi- 
nary to relate, having never yet been arranged, 
neither during the Peace Conference nor after- 
wards. Defeated in a proposal to invite German 
representatives to San Remo forthwith, he suc- 
ceeded in carrying a decision to summon them to 
visit Spa in the following month ''for the discus- 
sion of the practical application of the Reparation 
Clauses." This was the first step; and for the 
rest the Conference contented itself with a Dec- 
laration on German Disarmament. Mr. Lloyd 
George had had to concede to M. Millerand that 
the integrity of the Treaty should be maintained ; 
but speaking in the House of Commons on his re- 
turn home, he admitted a preference for a not 
"too literal** interpretation of it. 

In May the Premiers met in privacy at Hythe 
to consider their course at Spa. The notion of 



FEOM TKEATY TO CONFERENCE OF LONDON 19 

the sliding scale, which was to play a great part 
in the Paris Decisions and the Second Ultimatum 
of London, now came definitely on the carpet. A 
Committee of Experts was appointed to prepare 
for examination a scheme by which Germany 
should pay a' certain minimum sum each year, 
supplemented by further sums in accordance with 
her capacity. This opened the way for new 
ideas, but no agreement was yet in sight as to 
actual figures. Meantime the Spa Conference was 
put off for a month. 

In the following month the Premiers met again 
at Boulogne (June 21, 1920), this meeting being 
preceded by an informal week-end at Hythe (June 
19, 1920). It was reported that on this occasion 
the Allies got so far as definitely to agree on the 
principle of minimum annuities extensible in ac- 
cordance with Germany's economic revival. Defi- 
nite figures even were mentioned, namely, a period 
of thirty-five years and minimum annuities of 
three milliard gold marks. The Spa Conference 
was again put off into the next month. 

At last the Spa meeting was really due. Again 
the Premiers met (Brussels, July 2, 3, 1920) to 
consider the course they would adopt. They dis- 
cussed many things, especially the proportions in 
which the still hypothetical Reparation receipts 
were to be divided amongst the claimants/ But 

* See Excursus VI. 



20 A EEVTSION" or THE TREATY 

no concrete scheme was adopted for Reparation 
itself. Meanwhile a memorandum handed in by 
the German experts made it plain that no plan 
politically possible in France was economically 
possible in Germany. ''The Note of the German 
economic experts," wrote The Times on July 3, 
1920, *'is tantamount to a demand for a complete 
revision of the Peace Treaty. The Allies have 
therefore to consider whether they will call the 
Germans sharply to order under the menace of 
definite sanctions, or whether they will risk creat- 
ing the impression of feebleness by dallying with 
German tergiversations." This was a good idea; 
if the Allies could not agree amongst themselves 
as to the precise way of altering the Treaty, a 
''complete accord" between them could be re- 
established by "calling the Germans sharply to 
order" for venturing to suggest that the Treaty 
could be altered at all. 

At last, on July 5, 1920, the long-heralded Con- 
ference met. But, although it occupied twelve 
days, no time was found for reaching the item on 
the agenda which it had been primarily summoned 
to discuss — namely. Reparations. Before this 
dangerous topic could be reached urgent engage- 
ments recalled M. Millerand to Paris. One of the 
chief subjects actually dealt with, coal, is treated 
in Excursus I. at the conclusion of this chapter. 
But the chief significance of the meeting lay in 



FEOM TREATY TO CONFERENCE OF LONDON 21 

the fact that then for the first time the responsi- 
ble ministers and experts of Germany and the 
Allied States met face to face and used the meth- 
ods of public conference and even private inti- 
macy. The Spa Conference produced no plan; 
but it was the outward sign of some progress 
under the surface. 

III. The Brussels Conference (Decemher 16-22, 

1920) 

Whilst the Spa Conference made no attempt 
to discuss the general question of the Keparation 
settlement, it was again agreed that the latter 
should be tackled at an early date. But time 
passed by, and nothing happened. On September 
23, 1920, M. Millerand succeeded to the Presi- 
dency of the French Eepublic, and his place as 
Premier was taken by M. Leygues. French offi- 
cial opinion steadily receded from the concessions, 
never fully admitted to the French public, which 
Mr. Lloyd George had extracted at Boulogne. 
They now preferred to let the machinery of the 
Reparation Commission run its appointed course. 
At last, however, on November 6, 1920, after much 
diplomatic correspondence, it was announced that 
once again the French and British Governments 
were in ''complete accord." A conference of ex- 
perts, nominated by the Reparation Commission, 
was to sit with German experts and report; then 



22 A KEVISION OF THE TREATY 

a conference of ministers was to meet the Ger- 
man Government and report; with these two re- 
ports before it the Separation Commission was 
to fix the amount of Germany's liability; and 
finally, the heads of the Allied Governments were 
to meet and "take decisions." ''Thus," The 
Times recorded, "after long wanderings in the 
wilderness we are back once more at the Treaty 
of Versailles." The re-perusal of old files of 
newspapers, which the industrious author has un- 
dertaken, corroborates, if nothing else does, the 
words of the Preacher and the dustiness of 
fate. 

The first stage of this long procedure was in 
fact undertaken, and certain permanent officials 
of the Allied Governments ^ met German repre- 
sentatives at Brussels, shortly before Christmas 
1920, to ascertain facts and to explore the situa- 
tion generally. This was a conference of "ex- 
perts" as distinguished from the conferences of 
"statesmen" which preceded and followed it. 

The work of the Brussels experts was so largely 
ignored and overthrown by the meetings of the 
statesmen at Paris shortly afterwards, that it is 
not now worth while to review it in detail. It 

' Lord D'Abernon and Sir John Bradbury for Great Britain, 
Seydoux and Cheysson for France, d'Amelio and Giannini for 
Italy, Delacroix and Lepreux for Belgium, and, in accordance with 
custom, two Japanese. The German representatives included 
Bergmann, Havenstein, Cuno, Melchior, von IStauss, Bonn, and 
Schroeder. 



FEOM TEEATY TO CONFERENCE OF LONDON 23 

marked, however, a new phase in our relations 
with Germany. The officials of the two sides met 
in an informal fashion and talked together like 
rational beings. They were representative of the 
pick of what might be called 'international of- 
ficialdom," cynical, humane, intelligent, with a 
strong bias towards facts and a realistic treat- 
ment. Both sides believed that progress was being 
made towards a solution ; mutual respect was fos- 
tered; and a sincere regret w^as shared at the 
early abandonment of reasonable conversations. 

The Brussels experts did not feel themselves 
free to consider an average payment less than 
that contemplated at Boulogne. They recom- 
mended to the Allied Governments, accordingly, 
(1) that during the five years from 1921 to 1926 
Germany should pay an average annuity of $750,- 
000,000, but that this average annuity should be 
so spread over the five years that less than this 
amount would be payable in the first two years 
and more in the last two years, the question of the 
amount of subsequent payments, after the ex- 
piry of five years, being postponed for the pres- 
ent; 

(2) That a substantial part of this sum should 
be paid in the form of deliveries of material and 
not of cash ; 

(3) That the annual expenses of the Armies of 
Occupation should be limited to $60,000,000, which 



24 A KEVISION OF THE TREATY 

payment need not be additional to the above an- 
nuities but a first charge on them; 

(4) That the Allies should waive their claim on 
Germany to build ships for them and should per- 
haps relinquish, or postpone, the claim for the de- 
livery of a certain number of the existing German 
vessels ; 

(5) That Germany on her side should put her 
finances and her budget in order and should agree 
to the Allies taking control of her customs in the 
event of default under the above scheme. 

IV. The Decisions of Paris {January 24-30, 1921) 

The suggestions of the Brussels experts fur- 
nished no permanent settlement of the question, 
but they represented, nevertheless, a great ad- 
vance from the ideas of the Treaty. In the 
meantime, however, opinion in France was ris- 
ing against the concessions contemplated. M. 
Leygues, it appeared, would be unable to carry in 
the Chamber the scheme discussed at Boulogne. 
Prolonged political intrigue ended in the succes- 
sion of M. Briand to the Premiership, with the 
extreme defenders of the literal integrity of the 
Treaty of Versailles, M. Poincare, M. Tardieu, 
and M. Klotz, still in opposition. The projects of 
Boulogne and Brussels were thrown into the melt- 
ing-pot, and another conference was summoned to 
meet at Paris at the end of January 1921. 



FEOM TREATY TO CONFERENCE OF LONDON" 25 

It was at first doubtful whether the proceedings 
might not terminate with a breach between the 
British and the French points of view. Mr. Lloyd 
George was justifiably incensed at having to sur- 
render most of the ground which had seemed defi- 
nitely gained at Boulogne ; with these fluctuations 
negotiation was a waste of time and progress im- 
possible. He was also disinclined to demand pay- 
ments from Germany which all the experts now 
thought impossible. For a few days he was en- 
tirely unaccommodating to the French conten- 
tions; but as the business proceeded he became 
aware that M. Briand was a kindred spirit, and 
that, whatever nonsense he might talk in public, 
he was secretly quite sensible. A breach in the 
conversations might mean the fall of Briand and 
the entrance to office of the wild men, Poincare 
and Tardieu, who, if their utterances were to be 
taken seriously and were not merely a ruse to 
obtain office, might very well disturb the peace of 
Europe before they could be flung from authority. 
Was it not better that Mr. Lloyd George and M. 
Briand, both secretly sensible, should remain col- 
leagues at the expense of a little nonsense in uni- 
son for a short time? This view of the situation 
prevailed, and an ultimatum was conveyed to Ger- 
many on the following lines.^ 

The Reparation payments, proposed to Ger- 

* The text of these Decisions is given In Appendix No. 2. 



26 A REVISION OF THE TREATY 

many by the Paris Conference, were made up of 
a determinate part and an indeterminate part. 
The former consisted of $500,000,000 per annum 
for two years, $750,000,000 for the next three, then 
$1,000,000,000 for three more, and $1,250,000,000 
for three after that, and, finally, $1,500,000,000 
annually for 31 years. The latter (the indeter- 
minate part) consisted of an annual sum, addi- 
tional to the above, equal in value to 12 per cent 
of the German exports. The fixed payments un- 
der this scheme added up to a gross total of $56,- 
500,000,000 which was a little less than the gross 
total contemplated at Boulogne but, with the ex- 
port proportion added, a far greater sum. 

The indeterminate element renders impossible 
an exact calculation of this burden, and it is no 
longer worth while to go into details. But I cal- 
culated at the time, without contradiction, that 
these proposals amounted for the normal period 
to a demand exceeding $2,000,000,000 per annum, 
which is double the highest figure that any com- 
petent person in Great Britain or in the United 
States has ever attempted to justify. 

The Paris Decisions, however, coming as they 
did after the discussions of Boulogne and Brus- 
sels, were not meant seriously, and were simply 
another move in the game, to give M. Briand a 
breathing space. I wonder if there has ever been 
anything quite like it — best diagnosed perhaps as 



FROM TREATY TO CONFERENCE OF LONDON 27 

a consequence of the portentous development of 
* 'propaganda." The monster had escaped from 
the control of its authors, and the extraordinary- 
situation was produced in which the most power- 
ful statesmen in the world were compelled by- 
forces, which they could not evade, to meet to- 
gether day after day to discuss detailed variations 
of what they knew to be impossible. 

Mr. Lloyd George successfully took care, how- 
ever, that the bark should have no immediate bite 
behind it. The consideration of effective penal- 
ties was postponed, and the Germans were invited 
to attend in London in a month's time to convey 
their answer by word of mouth. 

M. Briand duly secured his triumph in the 
Chamber. '* Rarely," The Times reported, *'can 
M. Briand in all his long career as a speaker and 
Parliamentarian have been in better form. The 
flaying of M. Tardieu was intensely dramatic, even 
if at times almost a little painful for the spec- 
tators as well as for the victim." M. Tardieu 
had overstated his case, and ''roundly asserting 
that the policy of France during the last year had 
been based on the conclusion that the financial 
clauses of the Treaty of Versailles could not be 
executed, had gained considerable applause by de- 
claring that this was just the thesis of the pacifist, 
Mr. Keynes, and of the German delegate. Count 
Brockdorff-Rantzau," — which was certainly 



28 A EEVISION OF THE TREATY 

rather unfair to the Paris Decisions. But by that 
date, even in France, to praise the perfections of 
the Treaty was to make oneself ridiculous. ''I 
am an ingenuous man," said M. Briand as he 
mounted the tribune, *'and when I received from 
M. Tardieu news that he w^as going to interpellate 
me, I permitted myself to feel a little pleased. I 
told myself that M. Tardieu was one of the prin- 
cipal architects of the Treaty of Versailles, and 
that as such, though he knew its good qualities, he 
would also know its blemishes, and that he would, 
therefore, be indulgent to a man who had done 
his best in fulfilling his duty of applying it — 
mais voild (with a gesture) — I did not stop to re- 
member that M. Tardieu had already expended all 
his stock of indulgence upon his own handiwork." 
The monstrous offspring of propaganda was 
slowly dying. 

V. The First Conference of London {March 1-7, 

1921) 

In Germany the Paris proposals were taken 
seriously and provoked a considerable outcry. 
But Dr. Simons accepted the invitation to London 
and his experts got to work at a counter-proposal. 
^'I was in agreement," he said at Stuttgart on 
February 13, "with the representatives of Brit- 
ain and France at the Brussels Conference. The 
Paris Conference shattered that. A catastrophe 



FROM TREATY TO CONFERENCE OF LONDON 29 

has occurred. German public opinion will never 
forget these figures. Now it is impossible to re- 
turn to the Seydoux plan put forward at Brussels 
{i.e., a provisional settlement for five years), for 
the German people would always see enormous 
demands rising before them like a specter. . . . 
We shall rather accept unjust dictation than sign 
undertakings we are not firmly persuaded the 
German people can keep." 

On March 1, 1921, Dr. Simons presented his 
counter-proposal to the Allies assembled in Lon- 
don. Like the original counter-proposal of 
Brockdorff-Rantzau at Versailles, it was not 
clear-cut or entirely intelligible; and it was ru- 
mored that the German experts were divided in 
opinion amongst themselves. Instead of stating 
in plain language what Germany thought she could 
perform, Dr. Simons started from the figures of 
the Paris Decisions and then proceeded by trans- 
parent and futile juggling to reduce them to a 
quite different figure. The process was as fol- 
lows. Take the gross total of the fixed annuities 
of the Paris scheme {i.e., apart from the export 
proportion), namely $56,500,000,000, and calculate 
its present value at 8 per cent interest, namely 
$12,500,000,000; deduct from this $5,000,000,000 as 
the alleged (but certainly not the actual) value 
of Germany's deliveries up to date, which leaves 
$7,500,000,000. This was the utmost Germany 



30 A REVISION OF THE TREATY 

could pay. If the Allies could raise an interna- 
tional loan of $2,000,000,000, Germany would pay 
the interest and sinking fund on this, and in ad- 
dition $250,000,000 a year for five years, towards 
the discharge of the capital sum remaining over 
and above the $2,000,000,000, namely, $5,500,000,- 
000, which capital sum, however, would not carry 
interest pending repayment. At the end of five 
years the rate of repayment would be reconsid- 
ered. The whole proposal was contingent on the 
retention of Upper Silesia and the removal of all 
impediments to German trade. 

The actual substance of this proposal was not 
unreasonable and probably as good as the Allies 
will ultimately secure. But the figures were far 
below even those of the Brussels experts, and the 
mode of putting it forward naturally provoked 
prejudice. It was summarily rejected. 

Two days later Mr. Lloyd George read to the 
German Delegation a lecture on the guilt of their 
country, described their proposals as ''an offense 
and an exasperation," and alleged that their taxes 
were ** ridiculously low compared with Great Brit- 
ain's." He then delivered a formal declaration 
on behalf of the Allies that Germany was in de- 
fault in respect of ''the delivery for trial of the 
criminals who have offended against the laws of 
war, disarmament, and the payment in cash or 
kind of $5,000,000,000"; and concluded with an 



FKOM TKEATY TO CONFERENCE OF LONDON 31 

ultimatum ^ to the effect that unless he heard by 
Monday (March 7) ''that Germany was either 
prepared to accept the Paris Decisions or to sub- 
mit proposals which would be in other ways an 
equally satisfactory discharge of her obligations 
under the Treaty of Versailles (subject to the 
concessions made in the Paris proposals)," the 
Allies would proceed to (1) the occupation of 
Duisberg, Ruhrort, and Diisseldorf on the right 
bank of the Rhine, (2) a levy on all payments due 
to Germany on German goods sent to Allied coun- 
tries, (3) the establishment of a line of Customs 
between the occupied area of Germany and the 
rest of Germany, and (4) the retention of the 
Customs paid on goods entering or leaving the oc- 
cupied area. 

During the next few days negotiations pro- 
ceeded, to no purpose, behind the scenes. At 
midnight on March 6, M. Loucheur and Lord 
D'Abernon offered the Germans the alternative of 
a fixed payment of $750,000,000 for 30 years and 
an export proportion of 30 per cent.^ The formal 
Conference was resumed on March 7. '*A crowd 
gathered outside Lancaster House in the morning 
and cheered Marshal Foch and Mr. Lloyd George. 
Shouts of 'Make them pay, Lloyd George!' were 

* The full text is given in Appendix No. 4. 

* Compare this with the fixed payment of $500,000,000 and an 
export proportion of 26 per cent proposed in the second Ultimatum 
of London, only two months later. 



32 A REVISION" OF THE TEEATT 

general. The German delegates were regarded 
with curiosity. General von Seeckt wore uniform 
with a sword. He wore also an eyeglass in the 
approved manner of the Prussian officer and bore 
himself as the incarnation of Prussian militarism. 
Marshal Foch, Field-Marshal Sir Henry Wilson, 
and the other Allied soldiers also wore uniform." ^ 
Dr. Simons communicated his formal reply. 
He would accept the regime of the Paris Decisions 
as fixed for the first five years, provided Germany 
was helped to pay by means of a loan and retained 
Upper Silesia. At the end of five years the 
Treaty of Versailles would resume its authority, 
the provisions of which he preferred, as he was 
entitled to do, to the proposals of Paris. "The 
question of war guilt is to be decided neither by 
the Treaty, nor by acknowledgment, nor by Sanc- 
tions ; only history will be able to decide the ques- 
tion as to who was responsible for the world war. 
We are all of us still too near to the event." The 
Sanctions threatened were, he pointed out, all of 
them illegal. Germany could not be technically in 
default in respect of Eeparation until the Repara- 
tion Commission had made the pronouncements 
due from them on May 1. The occupation of fur- 
ther German territory was not lawful under the 
Treaty. The retention of part of the value of 
German goods was contrary to undertakings given 

• The Times, March 8, 1921. 



FROM TEEATY TO CONFEEENCE OF LONDON" 33 

by the British and Belgian Governments. The 
erection of a special Customs tariff in the Rhine- 
land was only permissible under Article 270 of the 
Treaty for the protection of the economic inter- 
ests of the Rhineland population and not for the 
punishment of the whole German people in re- 
spect of unfulfilled Treaty obligations. The argu- 
ments as to the illegality of the Sanctions were 
indisputable, and Mr. Lloyd George made no at- 
tempt to answer them. He announced that the 
Sanctions would be put into operation immedi- 
ately. 

The rupture of the negotiations was received in 
Paris '^witli a sigh of relief,"^ and orders were 
telegraphed by Marshal Foch for his troops to 
march at 7 a.m. next morning. 

No new Reparation scheme, therefore, emerged 
from the Conference of London. Mr. Lloyd 
George's acquiescence in the Decisions of Paris 
had led him too far. Some measure of personal 
annoyance at the demeanor of the German repre- 
sentatives and the failure of what, in its incep- 
tion, may have been intended as bluff, had ended 
in his agreeing to an attempt to enforce the De- 
cisions by the invasion of Germany. The eco- 
nomic penalties, whether they were legal or not, 
were so obviously ineffective for the purpose of 
collecting money, that they can hardly have been 

» The Times, March 8, 1921. 



34 A REVISION OF THE TREATY 

intended for that purpose, and were rather de- 
signed to frighten Germany into putting her name 
to what she could not, and did not intend to per- 
form, by threatening a serious step in the direction 
of the policy, openly advocated in certain French 
quarters, of permanently detaching the Ehine 
provinces from the German Commonwealth. The 
grave feature of the Conference of London lay 
partly in Great Britain's lending herself to a fur- 
therance of this policy, and partly in contempt for 
the due form and processes of law. 

For it was impossible to defend the legality of 
the occupation of the three towns under the 
Treaty of Versailles.^ Mr. Lloyd George endeav- 
ored to do so in the House of Commons, but at a 
later stage of the debate the contention was vir- 
tually abandoned by the Attorney-General. 

The object of the Allies was to compel Germany 
to accept the Decisions of Paris. But Germany's 
refusal to accept these proposals was within her 
rights and not contrary to the Treaty, since they 
lay outside the Treaty and included features un- 
authorized by the Treaty which Germany was at 
liberty either to accept or to reject. It was nec- 
essary, therefore, for the Allies to find some other 
pretext. Their effort in this direction was per- 

* A week or two later the German Government made a formal 
appeal to the Lea^ie of Nations against the legality of this act; 
but I am not aware that the League took any action on it. 



FROM TREATY TO CONFERENCE OF LONDON 35 

functory, and consisted, as already recorded, in 
a vague reference to war criminals, disarmament, 
and the payment of 20 milliard gold marks. 

The allegation of default in paying the 20 mil- 
liard gold marks was manifestly untenable at that 
date (March 7, 1921) ; for according to the Treaty, 
Germany had to pay this sum by May 1, 1921, ''in 
such instalments and in such manner as the Repa- 
ration Commission may fix," and in March 1921 
the Reparation Commission had not yet de- 
manded these cash payments/ But assuming 
that there had been technical default in respect 
of the war criminals and disarmament (and the 
original provisions of the Treaty had been so con- 
stantly modified that it was very difficult to say 
to what extent this was the case), it was our duty 
to state our charges precisely, and, if penalties 
were threatened, to make these penalties depend- 
ent on a failure to meet our charges. We were 
not entitled to make vague charges, and then 
threaten penalties unless Germany agreed to 
something which had nothing to do with the 
charges. The Ultimatum of March 7 substituted 
for the Treaty the intermittent application of 
force in exaction of varying demands. For when- 

* A few weeks later the Reparation Commission endeavored to 
put the action of the Supreme Council in order, by demanding 
one milliard marks in gold ($250,000,000), that is to say, the 
greater part of the reserve ot the Keichsbank against its note 
issue. This demand was afterwards dropped. 



36 A REVISION OF THE TREATY 

ever Germany was involved in a technical breach 
of any one part of the Treaty, the Allies were, 
apparently, to consider themselves entitled to 
make any changes they saw fit in any other part 
of the Treaty. 

In any case the invasion of Germany beyond 
the Rhine was not a lawful act under the Treaty. 
This question became of even greater importance 
in the following month, when the French an- 
nounced their intention of occupying the Ruhr. 
The legal issue is discussed in Excursus II. at the 
conclusion of this Chapter. 



VI. The Second Conference of London 
{April 29-May 5, 1921) 

The next two months were stormy. The Sanc- 
tions embittered the situation in Germany with- 
out producing any symptoms of surrender in the 
German Government. Towards the end of March 
the latter sought the intervention of the United 
States and transmitted a new counter-proposal 
through the Government of that country. In ad- 
dition to being straightforward and more precise, 
this offer was materially better than that of Dr. 
Simons in London at the beginning of the month. 
The chief provisions * were as follows : 

"•The full text is given in Appendix No. 6. 



FROM TREATY TO CONFERENCE OF LONDON 37 

1. The German liability to be fixed at $12,500,- 
000,000 present value. 

2. As much of this as possible to be raised im- 
mediately by an international loan, issued on at- 
tractive terms, of which the proceeds would be 
handed over to the Allies, and the interest and 
sinking fund on which Germany would bind her- 
self to meet. 

3. Germany to pay interest on the balance at 4 
per cent for the present. 

4. The sinking fund on the balance to vary with 
the rate of Germany's recovery. 

5. Germany, in part discharge of the above, to 
take upon herself the actual reconstruction of 
the devastated areas on any lines agreeable to the 
Allies, and in addition to make deliveries in kind 
on commercial lines. 

6. Germany is prepared, ''up to her powers of 
performance," to assume the obligations of the 
Allies to America. 

7. As an earnest of her good intentions, she 
offers $250,000,000 in cash immediately. 

If this is compared with Dr. Simons 's first offer, 
it will be seen that it is at least 50 per cent better, 
because there is no longer any talk of deducting 
from the total of $12,500,000,000 an alleged (and 
in fact imaginary) sum of $5,000,000,000 in re- 
spect of deliveries prior to May 1, 1921. If we 
assume an international loan of $1,250,000,000, 



38 A REVISIOlSr OF THE TREATY 

costing 8 per cent for interest and sinking fund,* 
the German offer amounted to an immediate pay- 
ment of $550,000,000 per annum, with a possibil- 
ity of an increase later in proportion to the rate 
of Germany's economic recovery. 

The United States Government, having first as- 
certained privately that this offer would not be 
acceptable to the Allies, refrained from its formal 
transmission.^ On this account, and also because 
it was overshadowed shortly afterwards by the 
Second Conference of London, this very straight- 
forward proposal has never received the atten- 
tion it deserves. It was carefully and precisely 
drawn up, and probably represented the full 
maximum that Germany could have performed, if 
not more. 

But the offer, as I have said, made very little 
impression; it was largely ignored in the press, 
and scarcely commented on anywhere. For in the 
two months which elapsed between the First and 
Second Conferences of London there were two 
events of great importance, which modified the 
situation materially.^ 

The first of these was the result of the Silesian 

' The practicability of such a loan on a large scale is of course 
more than doubtful, 

' The German Government is reported also to have offered, 
alternatively, to accept any sum which the President of the 
United States might fix. 

* After the enforcement of the Sanctions and the failure of the 
counter-proposals, the Cabinet of Herr Fehrenbach and Dr. Simons 
was succeeded by that of Dr. Wirth. 



FEOM TEEATY TO CONFEEEN"CE OF LONDON 39 

plebiscite held in March 1921. The earlier Ger- 
man Reparation offers had all been contingent on 
her retention of Upper Silesia ; and this condition 
was one which, in advance of the plebiscite, the 
Allies were unable to accept. But it now ap- 
peared that Germany was in fact entitled to most 
of the country, and, possibly, to the greater part 
of the industrial area. But this result also 
brought to a head the acute divergence between 
the policy of France and the policy of the other 
Allies towards this question. 

The second event was the decision of the Repa- 
ration Commission, communicated to Germany on 
April 27, 1921, as to her aggregate liabilities un- 
der the Treaty. Allied Finance Ministers had 
foreshadowed 300 milliard gold marks ; at the time 
of the Decisions of Paris, responsible opinion ex- 
pected 160-200 milliards ; * and the author of The 
Economic Consequences of the Peace had suffered 
widespread calumny for fixing on the figure of 137 
milliards,'- as being the nearest estimate he could 
make. The public, and the Government also, were, 
therefore, taken by surprise when the Reparation 
Commission announced that they unanimously as- 
sessed the figure at 132 milliards {i.e., $33,000,- 
000,000).^ It now turned out that the Decisions 

* As late as January 26, 1921, M. Doumer gave a forecast of 
240 milliards. 

* Exclusive of sums due in repayment of war loans made to 
Belgium. 



40 A REVISION" OF THE TEEATY 

of Paris, which had been represented as a mate- 
rial amelioration of the Treaty which Germany- 
was ungrateful not to accept, were no such thing; 
and that Germany was at that moment suffering 
from an invasion of her territory for a refusal to 
subscribe to terms which were severer in some re- 
spects than the Treaty itself. I shall examine the 
decision of the Reparation Commission in detail 
in Chapter IV. It put the question on a new basis 
and the Decisions of London could hardly have 
been possible otherwise. 

The decision of the Reparation Commission and 
the arrival of the date. May 1, 1921, fixed in the 
Treaty for the promulgation of a definite Repa- 
ration scheme, provided a sufficient ground for 
reopening the whole question. Germany had re- 
fused the Decisions of Paris; the Sanctions had 
failed to move her ; the regime of the Treaty was 
therefore reinstated ; and under the Treaty it was 
for the Reparation Commission to propose a 
scheme. 

In these circumstances the Allies met once more 
in London in the closing days of April 1921. The 
scheme there concerted was really the work of the 
Supreme Council, but the forms of the Treaty 
were preserved, and the Reparation Commission 
were summoned from Paris to adopt and promul- 
gate as their own the decree of the Supreme Coun- 
cil. 



FROM TREATY TO CONFERENCE OF LONDON 41 

The Conference met in circumstances of great 
tension. M. Briand had found it necessary to 
placate his Chamber by announcing that he in- 
tended to occupy the Ruhr on May 1. The policy 
of violence and illegality, which began with the 
Conference of Paris, had always included hitherto 
just a sufficient ingredient of make-believe to pre- 
vent its being as dangerous as it pretended to the 
peace and prosperity of Europe. But a point had 
now been reached when something definite, 
whether good or bad, seemed bound to happen; 
and there was every reason for anxiety. Mr. 
Lloyd George and M. Briand had walked hand- 
in-hand to the edge of a precipice; Mr. Lloyd 
George had looked over the edge ; and M. Briand 
had praised the beauties of the prospect below and 
the exhilarating sensations of a descent. Mr. 
Lloyd George, having indulged to the full his ha- 
bitual morbid taste for looking over, would cer- 
tainly end in drawing back, explaining at the same 
time how much he sympathized with M. Briand 's 
standpoint. But would M. Briand? 

In this atmosphere the Conference met, and, 
considering all the circumstances, including the 
past commitments of the principals, the result was, 
on the whole, a victory for good sense, not least 
because the Allies there decided to return to the 
pathway of legality within the ambit of the Treaty. 
Tlie new proposals, concerted at this Conference, 



vV 



42 A REVISION OF THE TREATY 

were, whether they were practicable or not in exe- 
cution, a lawful development of the Treaty, and 
in this respect sharply distinguished from the De- 
cisions of Paris in the January preceding. How- 
ever bad the Treaty might be, the London scheme 
provided a way of escape from a policy worse 
even than that of the Treaty, — acts, that is, of 
arbitrary lawlessness based on the mere posses- 
sion of superior force. 

In one respect the Second Ultimatum of Lon- 
don was lawless; for it included an illegal threat 
to occupy the Ruhr Valley if Germany refused its 
terms. But this was for the sake of M. Briand, 
whose minimum requirement was that he should 
at least be able to go home in a position to use, 
for conversational purposes, the charms of the 
precipice from which he was hurrying away. And 
the Ultimatum made no demand on Germany to 
which she was not already committed by her sig- 
nature to the Treaty. 

For this reason the German Government was 
right, in my judgment, to accept the Ultimatum 
unqualified, even though it still included demands 
impossible of fulfilment. For good or ill Ger- 
many had signed the Treaty. The new scheme 
added nothing to the Treaty's burdens, and, al- 
though a reasonable permanent settlement was 
left where it was before, — in the future, — in some 
respects it abated them. Its ratification, in May 



FEOM TREATY TO CONFERENCE OF LONDON 43 

1921, was in conformity with the Treaty, and 
merely carried into effect what Germany had had 
reason to anticipate for two years past. It did 
not call on her to do immediately — that is to say, 
in the course of the next six months — anything in- 
capable of performance. It wiped out the im- 
possible liability under which she lay of paying 
forthwith a balance of $3,000,000,000 due under 
the Treaty on May 1. And, above all, it obviated 
the occupation of the Ruhr and preserved the 
peace of Europe. 

There were those in Germany who held that it 
must be wrong that Germany should under threats 
profess insincerely what she could not perform. 
But the submissive acceptance by Germany of a 
lawful notice under a Treaty she had already 
sigiied committed her to no such profession, and 
involved no recantation of her recent communica- 
tion through the President of the United States 
as to what would eventually prove in her sincere 
belief to be the limits of practicable performance. 

In the existence of such sentiments, however, 
Germany's chief difficulty lay. It has not been 
understood in England or in America how deep 
a wound has been inflicted on Germany's self-re- 
spect by compelling her, not merely to perform 
acts, but to subscribe to beliefs which she did not 
in fact accept. It is not usual in civilized coun- 
tries to use force to compel wrongdoers to con- 



44 A EEVISION" OF THE TREATY 

fess, even when we are convinced of their guilt; 
it is still more barbarous to use force, after the 
fashion of inquisitors, to compel adherence to an 
article of belief because we ourselves believe it. 
Yet towards Germany the Allies had appeared to 
adopt this base and injurious practice, and had en- 
forced on this people at the point of the bayonet 
the final humiliation of reciting, through the 
mouths of their representatives, what they be- 
lieved to be untrue. 

But in the Second Ultimatum of London the 
Allies were no longer in this fanatical mood, and 
no such requirement was intended. I hoped, 
therefore, at the time that Germany would accept 
the notification of the Allies and do her best to 
obey it, trusting that the whole world is not un- 
reasonable and unjust, whatever the newspapers 
may say; that Time is a healer and an illumina- 
tor; and that we had still to wait a little before 
Europe and the United States could accomplish 
in wisdom and mercy the economic settlement of 
the war. 

EXCURSUS I 

COAL 

The question of coal has always considerable 
importance for Reparation, both because (in spite 
of the exaggerations of the Treaty) it is a form 
in which Germany can make important payments, 



COAL 45 

and also because of the reaction of coal deliveries 
on Germany's internal economy. Up to the mid- 
dle of 1921 Germany's payments for Reparation 
were almost entirely in the form of coal. And 
coal was the main topic of the Spa Conference, 
where for the first time the Governments of the 
Allies and of Germany met face to face. 

Under the terms of the Treaty Germany was to 
deliver 3,400,000 tons of coal per month. For 
reasons explained in detail in The Economic Con- 
sequences of the Peace (pp. 74-89) this total was 
a figure of rhetoric and not capable of realiza- 
tion. Accordingly for the first quarter of 1920 
the Reparation Commission reduced their demand 
to 1,660,000 tons per month, and in the second 
quarter to 1,500,000 tons per month ; whilst in the 
second quarter Germany actually delivered at the 
rate of 770,000 tons per month. This last figure 
was unduly low, and by the latter date coal was 
in short supply throughout the world and very 
dear. The main object of the Spa Coal Agree- 
ment was, therefore, to secure for France an in- 
creased supply of German coal. 

The Conference was successful in obtaining 
coal, but on terms not unfavorable to Germany. 
After much bargaining the deliveries were fixed 
at 2,000,000 tons a month for six months from 
August 1920. But the German representatives 
succeeded in persuading the Allies that they could 



46 A REVISION OF THE TREATY 

not deliver this amount unless their miners were 
better fed and that this meant foreign credit. 
The Allies agreed, therefore, to pay Germany 
something substantial for this coal, the sums thus 
received to be utilized in purchasing from abroad 
additional food for the miners. In form, the 
greater part of the sum thus paid was a loan; 
but, since it was set off as a prior charge against 
the value of Reparation deliveries {e.g., the 
ships), it really amounted to paying back to Ger- 
many the value of a part of these deliveries. Ger- 
many's total cash receipts^ under these arrange- 
ments actually came to about 360,000,000 gold 
marks,^ which worked out at about 40s. per ton 
averaged over the whole of the deliveries. As at 
this time the German internal price was from 25s. 
to 30s. per ton, the German Government received 
in foreign currency substantially more than they 
had to pay for the coal to the home producers. 
The high figure of 2,000,000 tons per month in- 
volved short supplies to German transport and 



* Under the Spa Agreement ( see Appendix No. 1 ) Germany 
was to be paid in cash 5 gold marks per ton for all coal delivered, 
and, in the case of coal delivered overland, "lent" (i.e , advanced 
out of Reparation receipts) the difference between the German 
inland price and the Britisli export price. At the date of the Spa 
Conference this difference was about 70s. per ton (lOOs. less 30s.), 
but this sum was not to be advanced in the ease of the unde- 
termined amount of coal delivered 61/ sea. The advances were 
made by the Allies in the proportions, 61 per cent by France, 24 
per cent by Great Britain, and 15 per cent by Belgixun and Italy. 

• For details of these payments see p. 133. 



COAL 47 

industry. But the money was badly wanted, and 
was of the utmost assistance in paying for the 
German food program (and also in meeting Ger- 
man liabilities in respect of pre-war debts) dur- 
ing the autumn and winter of 1920. 

This is a convenient point at which to record 
the subsequent history of the coal deliveries. Dur- 
ing the next six months Germany very nearly ful- 
filled the Spa Agreement, her deliveries towards 
the 2,000,000 tons per month being 2,055,227 tons 
in August, 2,008,470 tons in September, 2,288,049 
tons in October, 1,912,696 tons in November, 
1,791,828 tons in December, and 1,678,675 tons in 
January 1921. At the end of January 1921 the 
Spa Agreement lapsed, and since that time Ger- 
many has had to continue her coal deliveries with- 
out any payment or advance of cash in return for 
them. To make up for the accumulated deficit 
under the Spa Agreement, the Reparation Com- 
mission called for 2,200,000 tons per month, in 
February and March, and continued to demand 
this figure in subsequent months. Like so much 
else, however, this demand was only on paper. 
Germany was not able to fulfil it, her actual deliv- 
eries during the next six months amounting to 
1,885,051 tons in February 1921, 1,419,654 tons in 
March, 1,510,332 tons in April, 1,549,768 tons in 
May, 1,453,761 tons in June, and 1,399,132 tons in 
July. And the Reparation Commission, not really 



J 



46 



A REyiSION" OF THE TREATY 



wanting the coal, tacitly acquiesced in these quan- 
tities. During the first half of 1921 there was, in 
fact, a remarkable reversal of the situation six 
months earlier. In spite of the British Coal 
Strike, France and Belgium, having replenished 
their stocks and suffering from a depression in the 
iron and steel trades, were in risk of being glutted 

\ with coal. If Germany had complied with the full 
demands of the Eeparation Commission the recipi- 
ents would not have known - ' o do with the 

j deliveries. Even as it was, of the coal re- 

ceived was sold to exporters, . . the coal miners 
of France and Belgium were in danger of short 
employment. 

The statistics of the aggregate German output 
of pit coal are now as follows, exclusive of Alsace- 
Lorraine, the Saar, and the Palatinate, in mil- 
lion tons: 





1913. 


1917. 


1918. 


1919. 


1920. 


1921 (first 
nine months) 


Germany exclusive 














of Upper Silesia 


130.19 


111.6G 


109.54 


92.76 


99.66 


76.06 


Germany inclusive 














of Upper Silesia 


173.62 


154.41 


148.19 


117.69 


131.35 


100.60 


Per cent of 1913 














output 


100 


88.9 


85.4 


67.8 


75.7 


77.2 



The production of rough lignite (I will not 
risk controversy by attempting to convert this 
into its pit-coal equivalent) rose from 87.1 mil- 



COAL 49 

lion tons in 1913 to 93.8 in 1919, 111.6 in 1920, 
and 90.8 in the first three-quarters of 1921. 

The Spa Agreement supplied a temporary pal- 
liative of the anomalous conditions governing the 
price at which these coal deliveries are credited to 
Germany. But with the termination of this 
Agreement they again require attention. Under 
the Treaty Germany is credited in the case of coal 
delivered overland v'vith "the German pithead 
price to German r"?)tionals" plus the freight to 
the frontier; anr he case of coal delivered hy 

sea with the exji kj price; provided in each case 
this price is not m excess of the British export 
price. Now for various internal reasons the Ger- 
man Government have thought fit to maintain the 
pithead price to German nationals far below the 
world price, with the result that she gets credited 
with much less than its real value for her deliv- 
eries of Reparation coal. During the year end- 
ing June 1921 the average legal maximum price 
of the different kinds of coal was about 270 marks 
a ton, inclusive of a tax of 20 per cent on the 
price,^ which at the exchange then prevailing was 
about 20s., i.e., between a third and a half of the 
British price at that date. The fall in the mark 
exchange in the autumn of 1921 increased the dis- 
crepancy. For although the price of German coal 

* This very valuable tax, first imposed in 1917, yielded in 1920- 
21 mks. 414 milliards. 



50 A KEVISION OF THE TREATY 

was substantially increased in terms of paper 
marks, and although the price of British coal had 
fallen sharply, the movements of exchange so out- 
distanced the other factors, that in November 
1921 the price of British coal worked out at about 
three and half times the price of the best bitumi- 
nous coal from the Ruhr. Thus not only were the 
German iron-masters placed in an advantageous 
position for competing with British producers, but 
the Belgian and French industries also benefited 
artificially through the receipt by their Govern- 
ments of very low-priced coal. 

The German Government is in rather a dilemma 
in this matter. An increase in the coal tax is one 
of the most obvious sources for an increased reve- 
nue, and such a tax would be, from the standpoint 
of the exchequer, twice blessed, since it would in- 
crease correspondingly the Reparation credits. 
But on the other hand, such a proposal unites two 
groups against them, the industrialists, who want 
cheap coal for industry and the Socialists who 
want cheap coal for the domestic stove. From the 
revenue standpoint the tax would probably stand 
an increase from 20 per cent to 60 per cent; but 
from the political standpoint an increase from 20 
per cent to 30 per cent is the highest contemplated 
at present, with a differential price in favor of do- 
mestic consumers/ 

' Dr. Wirth's first Government prepared a Bill to raise the tax 
to 30 per cent, with power, however, to reduce the rate tem- 



COAL 51 

I take this opportunity of making a few cor- 
rections or amplifications of the passages in The 
Economic Consequences of the Peace which deal 
with coal. 

1. The fate of Upper Silesia is highly relevant 
to some of the conclusions about coal in Chapter 
IV of The Economic Consequences of the Peace 
(pp. 77-84). I there stated that ''German au- 
thorities claim, not without contradiction, that to 
judge from the votes cast at elections, one-third of 
the population would elect in the Polish interest, 
and two-thirds in the German," which forecast 
turned out to be in almost exact accordance with 
the facts. I also urged that, unless the plebiscite 
went in a way which I did not expect, the indus- 
trial districts ought to be assigned to Germany. 
But I felt no confidence, having regard to the pol- 
icy of France, that this would be done ; and I al- 
lowed, therefore, in my figures for the possibility 
that Germany would lose this area. 

The actual decision of the Allies, acting on the 
advice of the Council of the League of Nations to 
whom the matter had been referred, which we have 
discussed briefly above (pp. 12-14), divides the 
industrial triangle between the two claimants to 
it. According to an estimate of the Prussian Min- 
istry of Trade 86 per cent of the total coal depos- 

porarily to 25 per cent. It was estimated that the 30 per cent 
tax would bring in a revenue of 9.2 milliard marks. 



52 A REVISION" OF THE TREATY 

its of Upper Silesia fall to Poland, leaving 14 per 
cent to Germany. Germany retains a somewhat 
larger proportion of pits in actual operation, 64 
per cent of the current production of coal falling 
to Poland and 36 per cent to Germany.^ 

The figure of 100,000,000 tons, given in The Eco- 
nomic Consequences of the Peace for the net Ger- 
man production {i.e., deducting consumption at 
the mines themselves) in the near future exclud- 
ing Upper Silesia, should, therefore, be replaced 
by the figure of (say) 115,000,000 tons, including 
such part of Upper Silesia as Germany is now to 
retain. 

2. I beg leave to correct a misleading passage 
in a footnote to p. 79 of The Economic Conse- 
quences of the Peace. I there spoke of *' Poland's 
pre-war annual demand ' ' for coal, where I should 
have said ''pre-war Poland's pre-war annual de- 
mand." The mistake was not material, as I al- 
lowed for Germany's diminished requirements for 
coal, due to loss of territory, in the body of the 
text. But I confess that the footnote, as pub- 
lished, might be deemed misleading. At the same 

* The same authority estimates that 85.6 of Upper Silesia's 
zinc ore production and all the zinc smelting works fall to Po- 
land. This is of some importance, since before the war Upper 
Silesia was responsible for 17 per cent of the total world pro- 
duction of zinc. Of the iron and steel production of the area 63 
per cent falls to Poland. I am not in a position to check any of 
these figures. Some authorities ascribe a higiier proportion of 
the coal to Polaind. 



COAL 53 

time it is, I think, a tribute to the general ac- 
curacy of The Economic Consequences that par- 
tizan critics should have fastened so greedily on 
the omission of the word ''pre-war" before the 
word ' ' Poland ' ' in the footnote in question. Quite 
a considerable literature has grown up round it- 
The Polish Diet devoted January 20, 1921, to the 
discussion and patriotic analysis of this footnote, 
and concluded with a Eesolution ordering the 
chief speech of the occasion (that of Deputy A. 
Wierzlicki) to be published throughout the world 
in several languages at the expense of the State. 
I apologize for any depreciation in the Polish 
mark for which I may have been so inadvertently 
responsible. Mr. Wierzlicki begins: ''A book ap- 
peared by Keynes . . . the author of a well-known 
work on India, that pearl of the English crown, 
that land which is a beloved subject of study to 
the English. Through such studies a man may 
win himself name and fame," — which was cer- 
tainly a little unscrupulous of me. And he con- 
cludes : ' ' But England too must believe in facts ! 
And if Keynes, whose book is impregnated with 
a humanitarian spirit and with understanding of 
the necessity to get up beyond selfish interests, if 
Keynes is convinced by actual data that he has 
done a wrong, that he has wrought confusion in 
the ideas of statesmen and politicians as regards 
Upper Silesia, then he too will see with his eyes 



54 A REVISION" OF THE TREATY 

and must become the friend of Poland, of Poland 
as an active factor in the development of the nat- 
ural wealth of Silesia." I owe it to so generous 
and eloquent a critic to quote the corrected fig- 
ures, which are as follows : the Polish lands, united 
by the Peace Treaty into the new Polish State, 
consumed in 1913 19,445,000 tons of coal, of which 
8,989,000 tons were produced within that area and 
7,370,000 tons were imported from Upper Silesia 
(the total production of Upper Silesia in that year 
being 43,800,000 tons)/ The Silesian Plebiscite 
has been preceded and followed by a mass of 
propagandist literature on both sides. For the 
economic questions involved see, particularly, on 
the Polish side: Wierzlicki, The Truth about 
Upper Silesia; Olszewski, Upper Silesia, Her In- 
fluence on the Solvahility and on the Economic 
Life of Gerynany, and The Economic Value of 
Upper Silesia for Poland and Germany respec- 
tively; and on the German side : Sidney Osborne, 
The Upper Silesian Question and Germany's Coal 
Problem, The Problem of Upper Silesia (papers 
by various authors, not all on the German side, 
with excellent maps, edited by Sidney Osborne), 
various pamphlets by Professor Schulz-Gavernitz, 



' Those are the figures according to the Polish authorities. But 
it is difficult to obtain accurate pre-war figiires for an area which 
was not coterminous with any then existing State; and these 
totals have been questioned in detail by Dr. W. Schotte. 



COAL 55 

and documents circulated by the Breslau Chamber 
of Commerce. 

3. My observations on Germany's capacity to 
deliver reparation coal have been criticized in 
some quarters ^ on the ground that I made insuf- 
ficient allowance for the compensation which is 
available to her by the more intensive exploita- 
tion of her deposits of lignite or brown coal. This 
criticism is scarcely fair, because I was the first 
in popular controversy to call attention to the fac- 
tor of lignite, and because I was careful from the 
outset to disclaim expert knowledge of the sub- 
ject.^ I still find it difficult, in the face of conflict- 
ing expert opinions, to know how much importance 
to attach to this material. Since the Armistice 
there has been a substantial increase in output, 
which was 36 per cent higher in the first half of 
1921 than in 1913.^ In view of the acute shortage 
of coal this output must have been of material 

' See e.g., my controversy with M. Brenier in The Times. 

' In The Economic Consequences of the Peace, p. 92 n., I wrote 
as follows: "The reader must be reminded in particular that the 
above calculations take no account of the German production of 
lignite. ... I am not competent to speak on the extent to which 
the loss of coal can be made good by the extended use of lignite 
or by economies in its present employment; but some authorities 
believe that Germany may obtain substantial compensation for her 
loss of coal by paying more attention to her deposits of lignite." 

* That is to say, production in the middle of 1921 was at the 
rate of about 120,000,000 tons per annum. At that time the legal 
maximum price was 60 paper marks per ton (i.e., 53. or less) ; so 
that the national 'profit on the output in terms of money cannot 
have been a very material amount. 



56 A REVISION" OF THE TREATY 

assistance towards meeting the situation. The 
deposits are near the surface, and no great amount 
of capital or machinery is needed for its produc- 
tion. But lignite briquette is a substitute for coal 
for certain purposes only, and the evidence is con- 
flicting as to whether any further material ex- 
pansion is economically practicable/ 

The process of briquetting the rough lignite is 
probably a wasteful one, and it is doubtful whether 
it would be worth while to set up new plant with 
a view to production on a larger scale. Some 
authorities hold that the real future of lignite and 
its value as an element in the future wealth of 
Germany lie in improved methods of distillation 
(the chief obstacle to which, as also to other uses, 
lies in its high water content), by which the vari- 
ous oils, ammonia and benzine, latent in it can be 
released for commercial uses. 

It is certainly the case that the future possibil- 
ities of lignite should not be overlooked. But 
there is a tendency at present, just as was the case 
with potash some little time ago, to exaggerate its 
importance greatly as a decisive factor in the 
wealth-producing capacity of Germany. 

* In order to secure the increased output the number of miners 
was increased much more than in proportion, namely from 59,000 
in 1913 to 171,000 in the first half of 1921. As a result, the cost 
of production of lignite rose much faster than that of coal. Also 
since its calorific value is much less than that of coal per unit of 
weight (even when it is briquetted), it can only compete with 
coal, unless it is assisted by preferential freight fates, within a 
limited area in the neighborhood of the mines. 



liEGALITY OF OCCUPYING GEEMANY 57 
EXCURSUS II 

THE LEGALITY OF OCCUPYING GERMANY EAST OF THE 

RHINE 

The years 1920 and 1921 have been filled with 
excursions and with threats of excursions by the 
French Army into Germany east of the Rhine. 
In March 1920 France, without the approval of 
her Allies, occupied Frankfort and Darmstadt. 
In July 1920 a threat to invade Germany by the 
Allies as a whole was successful in enforcing the 
Spa Agreement. In March 1921 a similar threat 
was unsuccessful in securing assent to the Paris 
Decisions, and Duisberg, Ruhrort, and Dtisseldorf 
were occupied accordingly. In spite of the ob- 
jections of her Allies France continued this occu- 
pation when, by the acceptance of the second Ulti- 
matum of London, the original occasion for it had 
disappeared, on the ground that so long as the 
Upper Silesian question was unsettled, it was in 
the opinion of Marshal Foch just as well to retain 
this hold.^ In April 1921 the French Government 
announced their intention of occupying the Ruhr, 
though they were prevented from carrying this 
out by the pressure of the other Allies. In May 

* At the Paris Conference of August 1921 Lord Curzon tried 
unavailingly to persuade France to abandon this illegal occupa- 
tion. The so-called "Economic Sanctions" were raised on October 
1, 1921. The occupation still continues, though both the above 
pretexts have now disappeared. 



58 A REVISION" OF THE TREATY 

1921 the Second Ultimatum of London was suc- 
cessfully enforced by a threat to occupy the Ruhr 
Valley. Thus, within the space of little more than 
a year the invasion of Germany, beyond the Rhine, 
was threatened five times and actually carried out 
twice. 

We are supposed to be at peace with Germany, 
and the invasion of a country in time of peace is 
an irregular act, even when the invaded country is 
not in a position to resist. We are also bound by 
our adhesion to the League of Nations to avoid 
such action. It is, however, the contention of 
France, and apparently, from time to time, that of 
the British Government also, that these acts are 
in some way permissible under the Treaty of Ver- 
sailles, whenever Germany is in technical default 
in regard to any part of the Treaty, that is to say, 
since some parts of the Treaty are incapable of 
literal fulfilment, at any time. In particular the 
French Government maintained in April 1921 that 
so long as Germany possessed any tangible assets 
capable of being handed over, she was in volun- 
tary default in respect of Reparation, and that if 
she was in voluntary default any Ally was entitled 
to invade and pillage her territory without being 
guilty of an act of war. In the previous month 
the Allies as a whole had argued that default under 
Chapters of the Treaty, other than the Reparation 
Chapter, also justified invasion. 



LEGALITY OF OCCUPYING GEKMANY 59 

Though the respect shown for legality is now 
very small, the legal position under the Treaty 
deserves nevertheless an exact examination. 

The Treaty of Versailles expressly provides for 
breaches by Germany of the Reparation Chapter. 
It contains no special provision for breaches of 
other Chapters, and such breaches are, therefore, 
in exactly the same position as breaches of any 
other Treaty. Accordingly, I will discuss sepa- 
rately default in respect of Reparation, and other 
defaults. 

Sections 17 and 18 of the Reparation Chapter, 
Annex II. run as follows: 

*'(17) In case of default by Germany in the 
performance of any obligation under this part of 
the present Treaty, the Commission will forthwith 
give notice of such default to each of the inter- 
ested Powers, and will make such recommenda- 
tions as to the action to be taken in consequence of 
such default as it may think necessary. 

"(18) The measures which the Allied and As- 
sociated Powers shall have the right to take in 
case of voluntary default by Germany, and which 
Germany agrees not to regard as acts of war, may 
include economic and financial prohibitions and re- 
prisals, and in general such other measures as the 
respective Governments may determine to be nec- 
essary in the circumstances." 

There is also a provision in Article 430 of the 



\ 



60 A REVISION" OF THE TEEATY 

Treaty, by which any part of the occupied area 
which has been evacuated may be reoccupied if 
Germany fails to observe her obligations with re- 
gard to Reparation. 

The French Government base their contention 
on the words ''and in general such other meas- 
ures" in § 18, arguing that this gives them an en- 
tirely free hand. The sentence taken as a whole, 
however, supports, on the principle of ejiisdem 
generis, the interpretation that the other measures 
contemplated are of the nature of economic and 
financial reprisals. This view is confirmed by the 
fact that the rest of the Treaty narrowly limits 
the rights of occupying German territory, which, 
as M. Tardieu's book shows, was the subject of 
an acute difference of opinion between France and 
her Associates at the Peace Conference. There 
is no provision for occupying territory on the 
right bank of the Rhine; and the only provision 
for occupation in the event of default is that con- 
tained in Article 430. This Article, which pro- 
vides for reoccupation of the left bank in the event 
of default, would have been entirely pointless and 
otiose if the French view were correct. Indeed 
the theory, that at any time during the next thirty 
years any Ally can invade any part of Germany 
on the ground that Germany has not fulfilled every 
letter of the Treaty, is on the face of it unrea- 
sonable. 



LEGALITY OF OCCIJPYING GERMANY 61 

In any case, however, §§ 17, 18 of Annex 11. of 
the Reparation Chapter only operate after a spe- 
cific procedure has been set on foot by the Repa- 
ration Commission. It is the duty of the Repara- 
tion Commission to give notice of the default to 
each of the interested Powers, including presum- 
ably the United States, and to recommend action. 
If the default is voluntary — there is no provision 
as to who is to decide this — then the paragraphs 
in question become operative. There is no war- 
rant here for isolated action by a single Ally. 
And indeed the Reparation Commission have 
never so far put this procedure in operation. 

If, on the other hand, Germany is alleged to be 
in default under some other Chapter of the 
Treaty, then the Allies have no recourse except 
to the League of Nations; and they are bound to 
bring into operation Article 17 of the Covenant, 
which provides for the case of a dispute between 
a member of the League and a non-member. That 
is to say, apart from procedure by the Reparation 
Commission as set forth above, breaches or al- 
leged breaches of this Treaty are in precisely the 
same position as breaches of any other treaty be- 
tw^een two Powers which are at peace. 

According to Article 17, in the event of a dis- 
pute between a member of the League and a State 
which is not a member of the League, the latter 
* ' shall be invited to accept the obligations of mem- 



62 A REVISION- OF THE TREATY 

bership in the League for the purposes of such 
dispute, upon such conditions as the Council may 
deem just. If such invitation is accepted, the 
provisions of Articles 12 to 16 inclusive shall be 
applied, with such modifications as may be deemed 
necessary by the Council. Upon such invitation 
being given, the Council shall immediately insti- 
tute an inquiry into the circumstances of the dis- 
pute, and recommend such action as may seem 
best and most effectual in the circumstances." 

Articles 12 to 16 provide, amongst other things, 
for arbitration in any case of ''disputes as to 
the interpretation of a Treaty; as to any ques- 
tion of international law; as to the existence of 
any fact which, if established, would constitute 
a breach of any international obligation ; or as to 
the extent and nature of the reparation to be made 
for any such breach." 

The Allies as signatories of the Treaty and of 
the Covenant are therefore absolutely precluded 
in the event of a breach or alleged breach by Ger- 
many of the Treaty, from proceeding except 
under the power given to the Reparation Com- 
mission as stated above, or under Article 17 of 
the Covenant. Any other act on their part is il- 
legal. 

In any case it is obligatory on the Council of the 
League, under Article 17, to invite Germany, in 
the event of a dispute between Germany and the 



LEGALITY OF OCCUPYING GEEMANY 63 

Allies, to accept the obligations of membership 
in the League for the purposes of such dispute, 
and to institute inomediately an inquiry into the 
circumstances of the dispute. 

In my opinion the protest addressed by the Ger- 
man Government to the Council of the League of 
Nations in March 1921 was correctly argued. 
But, as with the inclusion of pensions in the Repa- 
ration Bill, we reserve the whole stock of our in- 
dignation over illegality between nations for the 
occasions when it is the fault of others. I am 
told that to object to this is to overlook "the hu- 
man element'* and is therefore both wrong and 
foolish. 



CHAPTER III 

The Burden' of the London Settlement 

The settlement of Reparations communicated to 
Germany by the Allied Powers on May 5, 1921, 
and accepted a few days later, constitutes the 
definitive scheme under the Treaty according to 
wiiich Germany for the next two generations is 
to discharge her liabilities.^ It will not endure. 
But it is the fait accompli of the hour, and, there- 
fore, deserves examination.^ 

The settlement falls into three parts compris- 
ing (1) provisions for the delivery of Bonds; (2) 
provisions for setting up in Berlin an Allied Com- 
mittee of Guarantees; (3) provisions for actual 
payment in cash and kind. 

1. The Delivery of Bonds. — These provisions 
are the latest variant of similar provisions in the 
Treaty itself. Allied Finance Ministers have en- 

* Tlie preamble states that the settlement is "in accordance 
with Article 233 of the Treaty of Versailles." This Article pre- 
scribes that the scheme of payments shall provide for the dis- 
charge of the liabilities within thirty years, aiiy unpaid balance 
at the end of this period being "postponed" or '"handled other- 
wise." In the actual settlement, however, the initial limitation 
to thirty years has been neglected. 

* This actual text is printed below in full, Appendix No. 7. 

64 



BUEDEN" OF THE LONDON" SETTLEMENT 65 

couraged themselves (or their constituents) with 
the hope that some part of the capital sum of 
Germany's liahilities might be anticipated by the 
sale to private investors of Bonds secured on fu- 
ture Reparation payments. For this purpose it 
was necessary that Germany should deliver nego- 
tiable Bonds. These Bonds do not constitute any 
additional burden on Germany. They are simply 
documents constituting a title to the sums which, 
under other clauses, Germany is to pay over an- 
nually to the Reparation Commission. 

The advantages to the Allies of marketing such 
Bonds are obvious. If they could get rid of the 
Bonds they would have thrown the risk of Ger- 
many's default on to others; they would have 
interested a great number of people all over the 
world in Germany's not defaulting; and they 
would have secured the actual cash which the ex- 
igencies of their Budgets demand. But the hope 
is illusory. When at last a real settlement is 
made, it may be practicable for the German Gov- 
ernment to float an international loan of moder- 
ate amount, well within the world's estimate of 
their minimum capacity of payment. But, though 
there are foolish investors in the world, it would 
be sanguine to believe that there are so many of 
such folly as to swallow at this moment on these 
lines a loan of vast dimensions. It costs France 
at the present time somewhere about 10 per cent 



66 A EEVISION" OF THE TREATY 

to float a loan of modest dimensions on the New 
York market. As the proposed German Bonds 
will carry 5 per cent interest and 1 per cent sink- 
ing fund, it would be necessary to reduce their 
price to 57 before they would yield 10 per cent 
including redemption. It would be very optimis- 
tic, therefore, to expect to market them at above 
half their par value. Even so, the world is not 
likely to invest in them any large proportion of 
its current savings, so that the whole amount even 
of the A Bonds, specified below, could not be mar- 
keted at this price. Moreover, in so far as the 
service of the Bonds marketed is within the 7nini^ 
mum expectation of Germany's capacity to pay 
(as it would have to be), the financial effect on 
the Ally which markets the Bonds is nearly the 
same as though they were to borrow themselves at 
the rate in question. Except, therefore, in the 
case of those Allies whose credit is inferior to 
Germany's, the advantage compared with borrow- 
ing on their own credit would not be very ma- 
terial.^ 

The details relating to the Bonds are not likely, 
therefore, to be operative, and need not be taken 
very seriously. They are really a relic of the 

* It is not competent for a single Ally {e.g., Portugal) to claim 
its share of the Bonds and market them at the best price obtain- 
able. Under the Treaty of Versailles Part VIII. Annex II. 13 (6) 
questions relating to the marketing of these Bonds can only be 
settled by unanimous decision of the Reparation Commiasion. 



BURDEN OF THE LONDON SETTLEMENT 67 

pretenses of the Peace Conference days. Briefly, 
the arrangements are as follows : 

Germany must deliver 12 milliards of gold 
marks ($3,000,000,000) in A Bonds, 38 milUards 
($9,500,000,000) in B Bonds, and the balance of 
her liabilities, provisionally estimated at 82 mil- 
liards ($20,500,000,000), in C Bonds. All the 
Bonds carry 5 per cent interest and 1 per cent 
cumulative sinking fund. The services of the se- 
ries A, B, and C constitute respectively a first, 
second, and third charge on the available funds. 
The A Bonds are issued to the Reparation Com- 
mission as from May 1, 1921, and the B Bonds as 
from November 1, 1921, but the C Bonds shall not 
be issued (and shall not carry interest in the mean- 
time) except as and when the Reparation Com- 
mission is of the opinion that the payments which 
Germany is making under the new settlement are 
adequate to provide their service. 

It may be noticed that the service of the A Bonds 
will cost $180,000,000 per annum, a sum well within 
Germany's capacity, and the service of the B 
Bonds will cost $570,000,000 per annum, making 
$750,000,000 altogether, a sum in excess of my 
own expectations of what is practicable, but not 
in excess of the figure at which some independent 
experts, whose opinion deserves respect, have es- 
timated Germany's probable capacity to pay. It 
may also be noticed that the aggregate face value 



68 A EEVISION OF THE TREATY 

of the A and B Bonds ($12,500,000,000) cor- 
responds to the figure at which the German Gov- 
ernment have agreed (in their counter-proposal 
transmitted to the United States) that their ag- 
gregate liability might be assessed. It is prob- 
able that, sooner or later, the C Bonds at any rate 
will be not only postponed, but canceled. 

2. TJie Committee of Guarantees. — This new 
body, which is to have a permanent office in Ber- 
lin, is in form and status a sub-commission of the 
Eeparation Conunission. Its members consist of 
representatives of the Allies represented on the 
Reparation Commission, with a representative of 
the United States, if that country consents to 
nominate.* To it are assigned the various wide 
and indefinite powers accorded by the Treaty of 
Peace to the Reparation Commission, for the gen- 
eral control and supervision of Germany's finan- 
cial system. But its exact functions, in practice 
and in detail, are still obscure. 

According to the letter of its constitution the 
Committee might embark on difficult and danger- 
ous functions. Accounts are to be opened in the 
name of the Committee, to which will be paid over 
in gold or foreign currency the proceeds of the 
German Customs, 26 per cent of the value of all 
exports and the proceeds of any other taxes which 

* The Committee is to coopt three representatives of neutrals 
when a sufficient proportion of the Bonds to justify their repre- 
aentation has been marketed on neutral Stock Exchanges. 



BUEDEN OF THE LONDON SETTLEMENT 69 

may be assigned as a "guarantee" for the pay- 
ment of Reparation. These receipts, however, 
chiefly accme not in gold or foreign currency, but 
in paper marks. If the Committee attempts to 
regulate the conversion of these paper marks into 
foreign currencies, it will in effect become re- 
sponsible for the foreign exchange policy of Ger- 
many, which it would be much more prudent to 
leave alone. If not, it is difficult to see what the 
"guarantees" really add to the other provisions 
by which Germany binds herself to make payments 
in foreign money. 

I suspect that the only real and useful purpose 
of the Committee of Guarantees is as an office of 
the Reparation Commission in Berlin, a highly 
necessary adjunct; and the clause about "guar- 
antees" is merely one more of the pretenses, 
which, in all these agreements, the requirements of 
politics intermingle with the provisions of finance. 
It is usual, particularly in France, to talk much 
about "guarantees," by which is meant, appar- 
ently, some device for making sure that the im- 
possible will occur. A "guarantee" is not the 
same thing as a "sanction." When M. Briand 
is accused of weakness at the Second Conference 
of London and of abandoning France's "real 
guarantees," these provisions enable him to re- 
pudiate the charge indignantly. He can point out 
that the Second Conference of London not only 



70 A EEVISION OF THE TREATY 

set up a Committee of Guarantees but secured, as 
a new and additional guarantee, the German Cus- 
toms. There is no answer to that ! ^ 

3. The Provisions for Payment in Cash and 
Kind. — The Bonds and the Guarantees are ap- 
paratus and incantation. We come now to the 
solid part of the settlement, the provisions for 
payment. 

Germany is to pay in each year, until her ag- 
gregate liability is discharged: 

(1) Two milliard gold marks. 

(2) A sum equivalent to 26 per cent of the value 
of her exports, or alternatively an equivalent 
amount as fixed in accordance with any other in- 
dex proposed by Germany and accepted by the 
Commission. 

(1) is to be paid quarterly on January 15, April 
15, July 15, and October 15 of each year, and (2) 
is to be paid quarterly on February 15, May 15, 
August 15, and November 15 of each year. 

This sum, calculated on any reasonable estimate 
of the future value of German exports, is mate- 
rially less than the original demands of the 
Treaty. Germany's total liability under the 
Treaty amounts to 138 milliard gold marks (inclu- 
sive of the liability for Belgian debt). At 5 per 

* And it roally is an adequate rejoinder to deputies like M. 
Forgeot. If a partisan or a child wants a silly, harmful thing, it 
may be better to meet him with a silly, harmless thing, than 
with explanations he cannot understand. This is the traditional 
wisdom of statesmen and nursemaids. 



BUKDEN or THE LONDON" SETTLEMENT 71 

cent interest and 1 per cent sinking fund, the an- 
nual charge on this would be 8.28 milliard gold 
marks. Under the new scheme the annual value 
of Germany's exports would have to rise to the 
improbable figure of 24 milliard gold marks be- 
fore she would be liable for so much as this. As 
we shall see below, the probable burden of the 
new settlement in the near future is probably not 
much more than half that of the Treaty. 

There is another important respect in which 
the demands of the Treaty are much abated. The 
Treaty included a crushing provision by which 
the part of Germany's nominal liability on which 
she was not able to pay interest in the early years 
was to accumulate at compound interest/ There 
is no such provision in the new scheme; the C 
Bonds are not to carry interest until the receipts 
from Germany are adequate to meet their service ; 
and the only provision relating to back interest 
is for the payment of simple interest in the event 
of there being a surplus out of the receipts. 

In order to understand how great an advance 
this settlement represented it is necessary to carry 
our minds back to the ideas which were prevalent 
not very long ago. The following table is inter- 
esting, in which, in order to reduce capital sums 
and annual payments to a common basis of com- 
parison, estimates in terms of capital sums are 

^ The eflfect of this provision ia discussed in The Economic Con- 
sequences of the Peace, pp. 165-167. 



72 A REVISION OF THE TREATY 

replaced by annuities of 6 per cent of their 
amount : 

In terms of Annuities 
Estimates of expressed in Milliards 

of Gold Marks. 

1. Lord Cnnliffe and the figure given 

out in the British General Elec- 
tion of 1918^ 28.8 

2. M. Ellotz's forecast in the French 

Chamber, September 5, 1919 ... 18 

3. The Assessment of the Reparation 

Commission, April 1921 8.28 

4. The London Settlement, May 1921 4.6 2 

The estimate of The Economic Consequences of 
the Peace (1919), namely 2 milliards, was nearly 
contemporaneous with M. EQotz's figure of 18 mil- 
liards. M. Tardieu recalls that, when the Peace 
Conference was considering whether a definite fig- 
ure could be inserted in the Treaty, the lowest 
figure which the British and French Prime Min- 
isters would accept, as a compromise to meet the 
pressure put upon them by the American repre- 
sentatives, corresponded to an annuity of 10.8 
milliards,^ which is nearly two and a half times 
the figure which they accepted two years later 
under the pressure, not of Americans, but of facts. 

There was yet another feature in the London 

* Cf. Baruch, The Making of the Reparation and Economic Sec- 
tions of the Treaty, p. 46; and Lamont, What Really Happened 
at Paris, p. 275. 

* Assuming exports of 10 milliards, which is double the actual 
figure of 1020. 

» The Truth about the Treaty, p. 305. 



BUEDEN OF THE LONDON SETTLEMENT 73 

Settlement which recommended it to moderate 
opinion. The dates of payment were so arranged 
as to reduce the burden on Germany during the 
first year. The Reparation year runs from May 1 
in each year to April 30 in the next; but in the 
period May 1, 1921-April 30, 1922 only two, in- 
stead of four, of the quarterly payments in re- 
spect of the export proportion will fall due. 

No wonder, therefore, that this settlement, so 
reasonable in itself compared with what had pre- 
ceded it, was generally approved and widely ac-. 
cepted as a real and permanent solution. But in 
spite of its importance for the time being, as a 
preservative of peace, as affording a breathing 
space, and as a transition from foolish expecta- 
tions, it cannot be a permanent solution. It is, 
like all its predecessors, a temporizing measure, 
which is bound to need amendment. 

To calculate the total burden, it is necessary to 
estimate the value of German exports. In 1920 
they amounted to about 5 milliard gold marks. In 
1921 the volume will be greater, but this will be 
offset by the fact that gold prices have fallen to 
less than trv'^o-thirds of what they were, so that 4 
to 5 milliard gold marks is quite high enough as 
a preliminary forecast for the year commencing 
May 1, 1921.^ It is, of course, impossible to make 

* Exports for the six months May-October 1921 were valued at 
about 40 milliard paper marks (exclusive, I think, of deliveries of 



7 



74 A REVISION OF THE TREATY 

a close estimate for later years. The figures will 
depend, not only on the recovery of Germany, but 
on the state of international trade generally, and 
more especially on the level of gold prices.^ For 
the next two or three years, if we are to make an 
estimate at all, 6 to 10 milliards is, in my judg- 
ment, the best one can make. 

Twenty-six per cent of exports, valued at 6 mil- 
liards gold, will amount to about 1^/2 milliard gold 
marks, making, with the fixed annual payment of 
2 milliards, 3ViJ milliards altogether. If exports 
rise to 10 milliards, the corresponding figure is 
4V2 milliards. The table of payments in the near 
future is then as shown on the next page, all the 
figures being in terms of milliards of gold marks. 
In the case of payments after May 1, 1922, I give 
alternative estimates on the basis of exports on 
the scale of 6 and 10 milliards respectively. 

Not the whole of these sums need be paid in 

coal and payments in kind to the Allies), as against imports 
valued at 53 milliard paper marks. If the monthly export figures 
are converted into gold marks at the average exchange of the 
month, the exports for the six months work out at about 1865 
million gold marks, or at the rate of rather less than 4 milliard 
gold marks per annum. 

* In The EconomiG Consequences of the Peace, p. 203, I ex- 
pressly promised that my estimates were based on a value of 
money not widely different from that existing at the date at which 
I wrote. Since then prices have risen and fallen back again. The 
same proviso is necessary in the case of the present estimates. It 
would have been more practical if, in fixing Germany's liability 
in terms of money for a long period of years, some provision had 
been made for adjusting the real burden in accordance with 
fluctuations in the value of money during the period of payment. 



BUEDEN OP THE LONDON SETTLEMENT 



75 



cash, and tlie value of deliveries in kind is to be 
credited to Germany against them. This item 
has been estimated as high as 1.2 to 1.4 milliard 
gold marks per annum. The result will chiefly 
depend (1) on the amount and price of the coal 
deliveries, and (2) on the degree of success which 
attends the negotiations between France and Ger- 
many for the supply by the latter of materials re- 
quired for the repair of the devastated area. The 
value of the coal deliveries depends on factors al- 
ready discussed on p. 49, above, the price of the 
coal being chiefly governed by the internal Ger- 
man price. At a price of 20 gold marks per ton 
and deliveries of 2,000,000 tons a month (neither 





3921-22 (Ex- 
ports 4 Mil- 
liards). 


1022-23 and 

subsequeutly 

(Exports 
6 Milliards). 


1922-23 and 

subsequently 

{Exports 
10 Milliards). 


May 25 >, 

July 15 


1.00 

.26 

.50 
.26 
.50 

2.52 


.39 
.50 
.39 
.50 
.39 
.50 
.39 
.50 

3.56 


.65 
.50 


Aug. 15 f 

Oct. 15 J 

JSIov. 15 


.65 
.50- 
.65 


Jan. 15 


.50 


Feb. 15 


65 


April 15 


.50 


Total 


4.60 


Equivalent in dol- -> 
lars at $1 = 4 ^ 
gold marka J 


$630,000,000 


$890,000,000 


$1,150,000,000 



76 A REVISION OF THE TEEATY 

of which figures are likely to be exceeded, or even 
reached, in the near future), coal will yield cred- 
its of .48 milliard gold marks. In the Loucheur- 
Rathenau Agreement^ the value of deliveries in 
kind to France, including coal, over the next five 
years has been estimated at a possible total of 1.4 
milliard gold marks per annum. If France re- 
ceives .4 milliard gold marks in coal, not more than 
35 per cent of the balance will be credited in the 
Reparation account. If this were realized, the 
aggregate deliveries in kind might approach 1 mil- 
liard. But, for various reasons, political and eco- 
nomic, this figure is unlikely to be reached, and 
if as much as .75 milliards per annum is real- 
ized from coal and reconstruction deliveries, this 
ought to be considered a highly satisfactory re- 
sult. 

Now the payments were so arranged as to pre- 
sent no insuperable difficulties during 1921. The 
instalment of August 31, 1921 (which did not ex- 
ceed the sum which the Germans had themselves 
offered for immediate payment in their counter- 
proposal of April 1921) was duly paid, partly out 
of foreign balances accumulated before May 1 
last, partly by selling out paper marks over the 
foreign exchanges, and partly by temporary ad- 
vances from an international group of bankers. 
The instalment of November 15, 1921, was covered 

* See Excursus III. 



BURDEN OF THE LONDON SETTLEMENT 77 

by the value of deliveries of coal and other ma- 
terial subsequent to May 1, 1921. Even the in- 
stalments of January 15 and February 15, 1922, 
might be covered out of further deliveries, tempo- 
rary advances, and the foreign assets of German 
industrialists, if the German Government could 
get hold of them. But the payment of April 15, 
1922, must present more difficulty ; whilst further 
instalments follow quickly on May 15, July 15, 
and August 15. Some time between February 
and August 1922 Germany will succumb to an in- 
evitable default. This is the maximum extent of 
our breathing space.^ 

That is to say, in so far as she depends for pay- 
ment (as in the long run she must do) on current 
income. If capital, non-recurrent resources be- 
come available, the above conclusion will require 
modification accordingly. Germany still has an 
important capital asset untouched — the property 
of her nationals now sequestered in the hands of 
the Enemy-Property Custodian in the United 
States, of which the value is rather more than 1 
milliard gold marks. If this were to become avail- 
able for Reparation, directly or indirectly, default 



'I first published this prediction in August 1921. As this 
book goes to press, the German Government have notified the 
Reparation Commission (December 15, 1921) that, having failed 
in their attempt to secure a foreign loan, they cannot find, apart 
from deliveries in kind, more than 150 or 200 million gold marks 
towards the instalments of January and February, 1922. 



78 A REVISION OF THE TREATY 

could be delayed correspondingly.^ Similarly the 
grant to Germany of foreign credits on a substan- 
tial scale, even three-months' credits from bank- 
ers on the security of the Reichsbank's gold, would 
postpone the date a little, however useless in the 
long run. 

In reaching this conclusion, one can approach 
the problem from three points of view: (1) the 
problem of paying outside Germany, that is to say, 
the problem of exports and the balance of trade; 

(2) the problem of providing for payment by 
taxation, that is to say, the problem of the Budget; 

(3) the proportion of the sums demanded to the 
German national income. I will take them in 
turn, confining myself to what Germany can be 
expected to perform in the near future, to the ex- 



* The United States has the right to retain and liquidate all 
property, rights, and interests belonging to German nationals and 
lying within the territories, colonies, and possessions of the United 
States on January 10, 1920. The proceeds of such liquidation are 
at the disposal of the United States "in accordance with its laws 
and regulations," that is to say, at the disposal of Congress 
within the limitations of the Constitution, and may be applied by 
them in any of the three following ways: (1) the assets in ques- 
tion may be returned to their original German owners; (2) they 
may be applied to the discharge of claims by United States na- 
tionals with regard to their property, rights, and interests in 
German territory, or debts owing to them by German nationals, 
or to the payment of claims growing out of acts of the German 
Government after the United States entered the war, and also to 
the discharge of similar American claims in respect of those of 
Germany's Allies against whom the United States was at war; 
(3) they may be turned over to the Reparation Commission as a 
credit to Germany under this head. 



BFKDEN OP THE LONDON SETTLEMENT 



79 



elusion of what she might do in hypothetical cir- 
cumstances many years hence. 

(1) In order that Germany may be able to make 
payments abroad, it is necessary, not only that 
she should have exports, but that she should have 
a surplus of exports over imports. In 1920, the 
last complete year for which figures are available, 
so far from a surplus there was a deficit, the ex- 
ports being valued at about 5 milliard gold marks 
and the imports at 5.4 milliards. The figures for 
1921 so far available indicate not an improvement 
but a deterioration. The myth that Germany is 
carrying on a vast and increasing export trade is 
so widespread, that the actual figures for the six 
months from May to October 1921, converted into 
gold marks, may be given with advantage : 





Million Paper 
Marks. 


MilUonGoId Marlss.' 




Imports. 


Exports. 


Imports. 


Exports. 


Excess 

of 
Imports. 


1921, May 


5,487 
6,409 
7,580 
9,418 
10,668 
13,900 


4,512 
5,433 
6,208 
6,684 
7,519 
9,700 


374.4 
388.8 
413.7 
477.2 
436.6 
352.6 


307.9 
329.7 
338.7 
334.8 
307.7 
246.0 


66.5 


" June 


59.1 


« July 


75.0 


" August 

" September 

" October ^ 


142.4 
128.9 
100.6 


Total for six months . . 


53,462 


40,056 


2443.3 


1864.8 


578.5 



* The rates for conversion of paper marks into gold marks have 
been taken as follows: Niunber of paper marks per 100 gold 
marks in May, 1465.5; June, 1647.9; July, 1832; August, 1996.4; 
September, 2443.2; October, 3942.6 ^Provisional figures. 



80 A KEVISION OF THE TREATY 

In respect of these six months Germany must 
make a fixed pajinent of 1000 million gold marks 
plus 26 per cent of the exports as above, namely 
484.8 million gold marks, that is 1484.8 million 
gold marks altogether, which is equal to about 80 
per cent of her exports ; whereas apart from any 
Reparation payments, she had a deficit on her for- 
eign trade at the rate of more than 1 milliard 
gold marks per annum. The bulk of Germany's 
imports are necessary either to her industries or 
to the food supply of the country. It is there- 
fore certain that with exports of (say) 6 milliards 
she could not cut her imports so low as to have the 
surplus of 3^2 milliards, which would be necessary 
to meet her Reparation liabilities. If, however, 
her exports were to rise to 10 milliards, her Repa- 
ration liabilities would become 4.6 milliards. Ger- 
many, to meet her liabilities, must therefore raise 
the gold-value of her exports to double what they 
were in 1920 and 1921 ivithout increasing her im- 
ports at all. 

I do not say that this is impossible, given time 
and an overwhelming motive, and with active as- 
sistance by the Allies to Germany's export in- 
dustries; but does any one think it practicable 
or likely in the actual circumstances of the case? 
And if Germany succeeded, would not this vast 
expansion of exports, unbalanced by imports, be 
considered by our manufacturers to be her crown- 



BURDEN OF THE LONDON SETTLEMENT 81 

ing crime? That this should be the case even 
under the London Settlement of 1921 is a measure 
of the ludicrous folly of the figures given out in 
the British General Election of 1918, which were 
six times as high again. 

(2) Next there is the problem of the Budget. 
For Reparation payments are a liability of the 
German Government and must be covered by tax- 
ation. At this point it is necessary to introduce 
an assumption as to the relation between the gold 
mark and the paper mark. For whilst the liability 
is fixed in terms of gold marks, the revenue (or the 
bulk of it) is collected in terms of paper marks. 
The relation is a very fluctuating one, best meas- 
ured by the exchange value of the paper mark in 
terms of American gold dollars. This fluctuation 
is of more importance over short periods than in 
the long run. For in the long run all values in 
Germany, including the yield of taxation, will tend 
to adjust themselves to an appreciation or de- 
preciation in the value of the paper mark outside 
Germany. But the process may be a very slow 
one, and, over the period covered by a year's 
budget, unanticipated fluctuations in the ratio of 
the gold to the paper mark may upset entirely the 
financial arrangements of the German Treasury. 

This disturbance has of course occurred on an 
unprecedented scale during the latter half of 1921. 
Taxation in terms of paper marks, which was 



82 A REVISION" OF THE TEEATY 

heavy when the dollar was worth 50 paper marks, 
becomes very inadequate when the dollar is worth 
200 paper marks; but it is beyond the power of 
any Finance Minister to adjust taxation to such a 
situation quickly. In the first place, when the fall 
in the external value of the mark is proceeding 
rapidly, the corresponding fall in the internal 
value lags far behind. Until this adjustment has 
"taken place, which may occupy a considerable time 
before it is complete, the taxable capacity of the 
people, measured in gold, is less than it was before. 
But even then a further interval must elapse be- 
fore the gold-value of the yield of taxation col- 
lectible in paper marks can catch up. The ex- 
perience of the British Inland Revenue Depart- 
ment well shows that the yield of direct taxation 
must largely depend on the taxable assessments 
of the previous period. 

For these reasons the collapse of the mark ex- 
change must, if it persists, destroy beyond repair 
the Budget of 1921-22, and probably that of the 
first half of 1922-23 also. But I should be over- 
stating my argument if I were to base my con- 
clusions on the figures current at the end of 1921. 
In the shifting sands in which the mark is foun- 
dering it is difiicult to find for one 's argument any 
secure foothold. 

During the summer of 19^1 the gold mark was 
worth, in round figures, 20 paper marks. The in- 



BUKDEN OF THE LONDON SETTLEMENT 83 

temal purcliasing power of the paper mark for 
the purposes of working-class consumption was 
still nearly double its corresponding value abroad, 
so that one could scarcely say that equilibrium 
had been established. Nevertheless, the position 
was very well adjusted compared with what it has 
since become. As I write (December 1921) the 
gold mark has been fluctuating between 45 and 
60 paper marks, while the purchasing power of 
the paper mark inside Germany is for general 
purposes perhaps three times what it is outside 
Germany. 

Since my figures of Government revenue and 
expenditure are based on statements made in the 
summer of 1921, perhaps my best course is to 
take a figure of 20 paper marks to the gold mark. 
The effect of this will be to understate my argu- 
ment rather than the contrary. The reader must 
remember that, if the mark remains at its present 
exchange value long enough for internal values to 
adjust themselves to that rate, the items in the 
following account, the income and the outgoings 
and the deficit, will all tend to be multiplied three- 
fold. 

At this ratio (of 20 paper marks = 1 gold 
mark), a Eeparation liability of 3^2 milliard gold 
marks (assuming exports on the scale of 6 mil- 
liards) is equivalent to 70 milliard paper marks, 
and a liability of 4i/^ milliards (assuming exports 



84 A EEVISION" OF THE TREATY 

of 10 milliards) is equivalent to 90 milliard paper 
marks. The German Budget for the financial year 
April 1, 1921, to March 31, 1922, provided for an 
expenditure of 93.5 milliards, exclusive of Repa- 
ration payments, and for a revenue of 59 mil- 
liards/ Thus the present Reparation demand 
would by itself absorb more than the whole of the 
existing revenue. Doubtless expenditure can be 
cut down, and revenue somewhat increased. But 
the Budget will not cover even the lower scale of 
the Reparation payments unless expenditure is 
halved and revenue doubled.^ 

^ The ordinary revenue and expenditure were estimated to bal- 
ance at 48.48 milliard paper marks. The extraordinary expendi- 
ture was estimated at 59.68 milliards, making a total expendi- 
ture of 108.16 milliards. Included in this, however, were 14.6 
milliards for various Keparation items. These are in respect of 
various pre-May 1, 1921, items and do not allow for payments 
under the London Settlement; but to avoid confusion I have 
deducted these from the estimate of expenditure as stated above. 
The extraordinary revenue was estimated at 10.5 milliards, mak- 
ing a total revenue of 58.98 milliards. 

^ I have allowed nothing so far for the costs of the Armies of 
Occupation, which, under the letter of the Treaty, Germany is 
under obligation to pay in addition to the sums due for Repara- 
tion proper. As these charges rank in priority ahead of Repara- 
tion, and as the London Agreement does not deal with them, I 
think Germany is liable to be called on to pay these as they 
accrue in addition to the annuities fixed in the London Settle- 
ment. But I am doubtful whether the Allies intend in fact to 
demand this. Hitherto the expense of the Armies has been so 
great as to absorb virtually the whole of the receipts (see Ex- 
cursus V. below), having amounted by 'the middle of 1921 to 
about $1,000,000,000. In any case, it is now time that the agree- 
ment, signed at Paris in 1919 by Clemenceau, Lloyd George, and 
Wilson, should be brought into force, to the effect that the siun 
payable annually by Germany to cover the cost of occupation 



BUEDEN" OF THE LONDON" SETTLEMENT 85 

If the German Budget for 1922-23 manages to 
balance, apart from any provision for Eeparation, 
this will represent a great effort and a consider- 
able achievement. Apart, however, from the tech- 
nical financial difficulties, there is a political and 
social aspect of the question which deserves at- 
tention here. The Allies deal with the established 
German Government, make bargains with them, 
and look to them for fulfilment. The Allies do 
not extract payment out of individual Germans 
direct; they put pressure on the transitory ab- 
straction called Government, and leave it to this 
to determine and to enforce which individuals are 
to pay, and how much. Since at the present time 
the German Budget is far from balancing even if 
there were no Eeparation payments at all, it is 
fair to say that not even a beginning has yet been 
made towards settling the problem of how the 
burden is to be distributed between different 
classes and different interests. 

Yet this problem is fundamental. Payment 
takes on a ditf erent aspect when, instead of being 
expressed in terms of milliards and as a liability 
of the transitory abstraction, it is translated into 

shall be limited to 240 million gold marks as soon as the Allies 
"are convinced that the conditions of disarmament by Germany- 
are being satisfactorily fulfilled." If we assume that this re- 
duced figure is brought into force, as it ought to be, the total 
burden on Germany for Reparation and Occupation comes, on the 
assumption of the lower figure for exports, to 3.8 milliard gold 
marks, that is, to 76 milliard paper marks. 



86 A EEVISION" OF THE TREATY 

a demand for a definite sum from a specific in- 
dividual. This stage is not yet reached, and until 
it is reached the full intrinsic difficulty will not 
be felt. For at this stage the struggle ceases to 
be primarily one between the Allies and the Ger- 
man Government and becomes a struggle between 
different sections and classes of Germans. The 
struggle will be bitter and violent, for it will pre- 
sent itself to each of the contesting interests as an 
affair of life and death. The most powerful in- 
fluences and motives of self-interest and self-pres- 
ervation will be engaged. Conflicting conceptions 
of the end and nature of Society will be ranged 
in conflict. A Government which makes a serious 
attempt to cover its liabilities will inevitably fall 
from power. 

(3) What relation do the demands bear to the 
third test of capacity, the present income of the 
German people? A burden of 70 milliard paper 
marks (if we may, provisionally, adopt that figure 
as the basis of our calculations) amounts, since the 
population is now about 60 millions, to 1170 marks 
per head for every man, woman, and child. 

The great changes in money values have made 
it difficult, in all countries, to obtain estimates of 
the national income in terms of money under the 
new conditions. The Brussels Conference of 
1920, on the basis of inquiries made in 1919 and 
at the beginning of 1920, estimated the German 



BUKDEN OF THE LONDON" SETTLEMENT 87 

income per head at 3900 paper marks. This fig- 
ure may have been too low at the time, and, on 
account of the further depreciation of the mark, 
is certainly too low now. A writer in the 
Deutsche Allgemeine Zeitung (Feb. 14, 1921), 
working on the statistics of statutory deductions 
from wages and on income-tax, arrived at a figure 
of 2333 marks per head. This figure also is likely 
to be too low, partly because the statistics must 
mainly. refer to earlier dates Avhen the mark was 
less depreciated, and partly because all such sta- 
tistics necessarily suffer from evasions. At the 
other extreme lies the estimate of Dr. Albert 
Lansburgh, who, by implication {Die Bank, March 
1921), estimated the income per head at 6570 
marks.^ Another recent estimate is that of Dr. 
Arthur Heichen in the Pester Lloyd (June 5, 
1921), who put the figure at 4450 marks. In a 
newspaper article published in various quarters 
in August 1921 I ventured to adopt the figure of 
5000 marks as the nearest estimate I could make. 
In fixing on this figure I was influenced by the 
above estimates, and also by statistics as to the 
general level of salaries and wages. Since then 

^ " This estimate is based on an average wage of about 800 
paper marks monthly for male, and about 400 paper marks 
monthly for female, employees." Converting these figures at the 
rate of 12 paper marks equal to 1 gold mark, he arrived at an 
aggregate national income between 30 and 34 milliard gold marks. 
It is not easy to see how these wage estimates, even assuming 
their correctness, can lead to so high an aggregate figure. 



88 A REVISION" OF THE TREATY 

I have looked into the matter further and am still 
of the opinion that this figure was high enough 
for that date. 

I am fortified in this conclusion by the result 
of inquiries which I addressed to Dr. Moritz Elsas 
of Frankfort-on-Main, on whose authority I quote 
the following figures. The best-known estimate 
of the German pre-war income is Helfferich's in 
his Deutschlands V olksivohlstand 1888-1913. In 
this volume he put the national income in 1913 
at 40-41 milliard gold marks, plus 2l^ milliards 
for net income from nationalized concerns (rail- 
ways, post office, etc.), that it is say, an aggregate 
of 43 milliards or 642 marks per head. Start- 
ing from the figure of 41 milliards (since the na- 
tional services no longer produce a profit) and 
deducting 15 per cent for loss of territory, we have 
a figure of 34.85 milliards. What multiplier ought 
we to apply to this in order to arrive at the pres- 
ent income in terms of paper marks! In 1920 
commercial employees obtained on the average in 
terms of marks ^2 times their pre-war income, 
whilst at that time workmen bad secured an in- 
crease in their nominal wages of 50 per cent more 
than this, that is to say, their wages were 6 to 8 
times the pre-war figure. According to the Sta- 
tistischen Reichsamt (Wirtschaft und Statistik, 
Heft 4, Jahrgang 1) commercial employees at the 
beginning of 1921 earned, males 6 2-3 times and 



BUEDEN OF THE LONDON SETTLEMENT 89 

females 10 times as much as in 1913.^ On the 
basis of the same proportion as in 1920 we arrive 
at an increase of 10 times in the nominal wages 
of workmen. The wages index number of the 
Frankfurter Zeitung for August 1921 estimates 
the wages per hour at 11 times the pre-war level, 
but, as the number of working hours has fallen 
from 10 to 8, these figures yield an increase of 
8.8 times in the wage actually received. Since 
the wages of male commercial employees have in- 
creased less than this, since business profits in 
terms of paper marks only reach this figure of 
increase in exceptional cases, and since the in- 
come of the rentier, landlord, and professional 
classes has increased in a far lower proportion, 
an estimate of an 8-fold increase in the nominal 
income of the country as a whole at that date 
(August 1921) is likely to be an over-estimate 
rather than an under-estimate. This leads to an 
aggregate national income, on the basis of the 
Helfferich pre-war figures, of 278.80 milliard 
paper marks, and to an income of 4647 marks per 
head in August 1921. 

No allowance is made here for the loss by war 
of men in the prime of life, for the loss of ex- 
ternal income previously earned from foreign in- 
vestment and the mercantile marine, or for the in- 

* There are twice as many male commercial employees as there 
are female. 



90 A EEVISION OF THE TREATY 

crease of officials. Against these omissions there 
may be set off the decrease of the army and the 
increased number of women employees. 

The extreme instability of economic conditions 
makes it almost impossible to conduct a direct sta- 
tistical inquiry into this problem at the present 
time. In such circumstances the general method 
of Dr. Elsas seems to me to be the best available. 
His results show that the figure taken above is 
of the right general dimensions and is not likely 
to be widely erroneous. It enables us, too, to put 
an upper limit of reasonable possibility on our 
figures. No one, I think, would maintain that in 
August 1921 nominal incomes in Germany aver- 
aged 10 times their pre-war level; and 10 times 
Helfferich's pre-war estimate comes to 6420 
marks. No statistics of national incomes are very 
precise, but an assertion that in the middle of 1921 
the German income per head per annum lay be- 
tween 4500 marks and 6500 marks, and that it was 
probably much nearer the lower than the higher 
of these figures, say 5000 marks, is about as near 
the truth as we shall get. 

In view of the instability of the mark, it is, of 
course, the case that such estimates do not hold 
good for any length of time and need constant re- 
vision. Nevertheless this fact does not upset the 
following calculation as much as might be sup- 
posed, because it operates to a certain extent on 



BUEDEN OF THE LONDON SETTLEMENT 91 

both sides of the account. If the mark depreci- 
ates further, the average income per head in 
paper marks will tend to rise; but in this event 
the equivalent in paper marks of the Reparation 
liability will, since it is expressed in terms of gold 
marks, rise also. A real alleviation can only re- 
sult from a fall in the value of gold (i.e., a rise 
in world prices). 

To the taxation in respect of the Reparation 
charge there must be added the burden of Ger- 
many's own government, central and local. By 
the most extreme economies, short of repudiation 
of war loans and war pensions, this burden could 
hardly be brought below 1000 paper marks per 
head (at 20 paper marks = 1 gold mark), i.e., 60 
milliards altogether, a figure greatly below the 
present expenditure. In the aggregate, there- 
fore, 2170 marks out of the average income of 
5000 marks, or 43 per cent, would go in taxation. 
If exports rise to 10 milliards (gold) and the aver- 
age income to 6000 paper marks, the correspond- 
ing figures are 2500 marks and 42 per cent. 

There are circumstances in which a wealthy na- 
tion, impelled by overwhelming motives of self- 
interest, might support this burden. But the an- 
nual income of 5000 paper marks per head is 
equivalent in exchange value (at an exchange of 
20 paper marks to 1 gold mark) to $62.50, and 
after deduction of taxation to about $35, that is 



92 A REVISION OF THE TREATY 

to say to less than 10 cents a day, which in August 
1921 was the equivalent in purchasing power in 
Germany of something between 20 cents and 25 
cents in the United States.^ If Germany was given 
a respite, her income and with it her capacity 
would increase; but under her present burdens, 
which render saving impossible, a degradation of 
standards is more likely. Would the whips and 
scorpions of any Government recorded in history 
have been efficient to extract nearly half their 
income from a people so situated? 

For these reasons I conclude that whilst the 
Settlement of London granted a breathing space 
to the end of 1921, it can be no more permanent 
than its predecessors. 

EXCURSUS III 

THE WIESBADEN AGKEEMENT 

In the summer of 1921 much interest was excited 
by reports of confidential interviews between M. 
Loucheur and Herr Rathenau, the Ministers of 
Reconstruction in France and Germany respec- 
tively. An agreement was provisionally reached 
in August 1921 and was finally signed at Wies- 
baden on October 6, 1921^; but it does not come 

* For a full examination of the purchasing power of the paper 
mark inside Germany, see an article by M. Elsas in the Economic 
Journal, September 1921. 

^ A summary of this Agreement and other papers relating to it 
are given in the Appendix No. 8. 



THE WIESBADEN AGREEMENT 93 

into force until it has received the approval of 
the Reparation Connnission. This Commission, 
whilst approving the general principles underly- 
ing it, have referred it to the principal Allied Gov- 
ernments on the ground that it involves departures 
from the Treaty of Versailles beyond their own 
competence to authorize. The British delegate, 
Sir John Bradbury, has advised his Government 
that the Agreement should be approved subject 
to certain modifications which he sets forth; and 
his Report has been published/ 

The Wiesbaden Agreement is a complicated doc- 
ument. But the essence of it is easily explained. 
It falls into two distinct parts. First, it sets up 
a procedure by which private French firms can 
acquire from private German firms materials re- 
quired for reconstruction in France, without 
France having to make payment in cash. Sec- 
ondly, it provides that, whilst Germany is not to 
receive payment at once for any part of these 
goods, only a proportion of the sum due is credited 
to her immediately in the books of the Reparation 
Commission, the balance being advanced by her 
to France for the time being and only brought 
into the Reparation account at a later date. 

The first set of provisions has met with un- 
qualified approval from every one. An arrange- 
ment which may possibly stimulate payment of 

* See Appendix No. 8. 



94 A KEVISION OF THE TEEATY 

Reparation in the form of actual materials for 
the reconstruction of the devastated districts sat- 
isfies convenience, economics, and sentiment in a 
peculiarly direct way. But such supplies were 
already arranged for under the Treaty, and the 
chief value of the new procedure lies in its re- 
placing the machinery of the Reparation Com- 
mission by direct negotiation between the French 
and German authorities.^ 

The second set of provisions is, however, of a 
different character, since it interferes with the 
existing agreements between the Allies themselves 
as to the order and proportions in which each is 
to share in the available receipts from Germany, 
and seeks to secure for France a larger share 
of the earlier payments than she would receive 
otherwise. A priority to France is, in my opin- 
ion, desirable; but such priority should be ac- 
corded as part of a general re-settlement of Repa- 
ration, in which Great Britain should waive her 
claim entirely. Further, the Agreement involves 
an act of doubtful good faith on the part of Ger- 

* Incidentally the Wiesbaden Agreement sets up a fairer pro- 
cedure for fixing the prices of supplies in kind than that con- 
templated in the Treaty. According to the Treaty the prices are 
fixed at the sole discretion of the Reparation Commission. In the 
Wiesbaden Agreement this duty is assigned to an Arbitral Com- 
mission consisting of a German representative, a French repre- 
sentative, and an impartial tliird who are to fix the prices, broadly 
speaking, on the basis of price existing in France in each quar- 
terly period subject to this price being not more than 5 per cent 
below the German price. 



THE WIESBADEN AGREEMENT 95 

many. She has been protesting with great vehe- 
mence (and, I believe, with perfect truth) that 
the Decisions of London exact from her more than 
she can perform. But in such circumstances it 
is an act of impropriety for her to enter volun- 
tarily into an agreement which must have the 
effect, if it is operative, of further increasing her 
liabilities even beyond those against which she 
protests as impossible. Herr Rathenau may jus- 
tify his action by the arguments that this is a 
first step towards replacing the Decisions of Lon- 
don by more sensible arrangements, and also that, 
if he can placate Germany's largest and most 
urgent creditor in the shape of France, he has 
not much to fear from the others. M. Loucheur, 
on the other hand, may know as well as I do, 
though speaking otherwise, that the Decisions of 
London cannot be carried out, and that the time 
for a more realistic policy is at hand; he may 
even regard his interviews with Herr Rathenau 
as a foretaste of more intimate relationships be- 
tween business interests on the two sides of the 
Rhine. But these considerations, if we were to 
pursue them, would lead us to a different plane of 
argument. 

Sir John Bradbury in his Report ^ on the Agree- 
ment to the British Government has proposed 
certain modifications which would have the effect 

* See Appendix ^o. 8. 



96 A REVISION OF THE TREATY 

of preserving the advantages of the first set of 
provisions, but of nullifying the latter so far as 
they could operate to the detriment of France's 
Allies. 

I consider, however, that exaggerated impor- 
tance has been attached to this topic, since the 
actual deliveries of goods made under the Wies- 
baden or similar agreements are not likely to be 
worth such large sums of money as are spoken 
of. Deliveries of coal, dyestuffs, and ships, dealt 
with in the Annexes to Part VIII. of the Treaty 
are specifically excluded from the operation of 
the Wiesbaden Agreement which is expressly 
limited to deliveries of plant and material, and 
these France undertakes to apply solely to the 
reconstitution of the devastated regions. The 
quantities of goods, which French firms and in- 
dividuals will be ready to order from Germany 
at the full market price, and which Germany can 
supply, for this limited purpose (so great a part 
of the cost of which is necessarily due to labor 
employed on the spot and not to materials capable 
of being imported from Germany), are not likely 
to amount, during the next five years, to a sum 
of money which the other Allies need grudge 
France as a priority claim. 

My other reserve relates to the supposed im- 
portance of the Wiesbaden Agreement as a prece- 
dent for similar arrangements with the other 



THE WIESBADEN AGREEMENT 97 

Allies, and raises the general issue of the utility 
of arrangements for securing that Germany 
should pay in kind rather than in cash, for 
other purposes than those of the devastated 
areas. 

It is commonly believed that, if our demands 
on Germany are met by her delivering to us not 
cash but particular commodities selected by our- 
selves, we can thus avoid the competition of Ger- 
man products against our own in the markets of 
the world, which must result if we compel her to 
find foreign currency by selling goods abroad at 
whatever cut in price may be necessary to market 
them.^ 

Most suggestions in favor of our being paid in 
kind are too vague to be criticized. But they usu- 
ally suffer from the confusion of supposing that 
there is some advantage in our being jjaid di- 
rectly in kind even in the case of articles which 
Germany might be expected to export in any case. 
For example, the Annexes to the Treaty which 
deal with deliveries in kind chiefly relate to coal, 
dyestuffs, and ships. These certainly do not sat- 
isfy the criterion of not competing with our own 
products; and I see very little advantage, but 
on the other hand some loss and inconvenience, 
in the Allies' receiving these goods direct, instead 

* I return to the theoretical aspects of this question in Chap- 
ter VI. 



98 A REVISION" OF THE TREATY 

of Germany's selling them in the best market and 
paying over the proceeds. In the case of coal 
in particular, it would be much better if Ger- 
many sold her output for cash in the best export 
markets, whether to France and Belgium or to 
the neighboring neutrals, and then paid the cash 
over to France and Belgium, than that coal should 
be delivered to the Allies for which the latter may 
have no immediate use, or by transport routes 
which are uneconomical, when neutrals need the 
coal and what the Allies really require is the 
equivalent cash. In some cases the Allies have 
re-sold the coal which Germany has delivered to 
them, — a procedure which, in the case of an ar- 
ticle for which freight charges cover so large a 
proportion of the whole value, involves a prepos- 
terous waste. 

If we try to stipulate the precise commodities 
in which Germany is to pay us, we shall not secure 
from her so large a contribution, as if we fix a 
reasonable sum which is within her capacity, and 
then leave her to find the money as best she can. 
If, moreover, the sum fixed is reasonable, the 
annual payments will not be so large, in propor- 
tion to the total volume of international trade, 
that Great Britain need be nervous lest the pay- 
ments upset the normal equilibrium of her eco- 
nomic life in any greater degree than is bound 
to result in any case from the gradual economic 



THE WIESBADEN AGREEMENT 99 

recovery of so formidable a trade rival as pre- 
war Germany. 

Whilst I make these observations in the in- 
terests of scientific accuracy, I admit that proj- 
ects, for insisting on payment in kind may be 
very useful politically as a means of escaping 
out of our present impasse. In practice the value 
of such deliveries would turn out to be immensely 
less than the cash we are now demanding; but 
it may be easier to substitute deliveries of ma- 
terials in place of cash, which will in practice 
result in a great abatement of our demands, than 
to abate the latter in so many words. Moreover, 
protests, against leaving Germany free to pay 
us in cash by selling goods how and where she 
can, enlist on the side of revision all the latent 
Protectionist sentiment which still abounds. If 
Germany were to make a strenuous effort to pay 
us by exploiting the only method open to her, 
namely, by selling as many goods as possible at 
low prices all over the world, it would not be 
long before many minds would represent this 
effort as a plot to ruin us; and persons of this 
way of thinking will be most easily won over, if 
we describe a reduction in our demands, as a 
prohibition to Germany against developing a 
nefarious competitive trade. Such a way of ex- 
pressing a desirable change of policy combines, 
with a basis of truth, sufficient false doctrine to 



100 A REVISION- OF THE TREATY 

enable The Times, for example, to recommend it 
in a leading article without feeling conscious of 
any intellectual inconsistency; and it furnishes 
what so many people are now looking for, namely, 
a pretext for behaving sensibly, without having 
to suffer the indignity and inconvenience of think- 
ing and speaking so too. Heaven forbid that I 
should discourage them! It is only too rarely 
that a good cause can summon to its assistance 
arguments sufficiently mixed to insure success. 

EXCURSUS IV 

THE MARK EXCHANGE 

The gold value of a country's inconvertible paper 
money may fall, either because the Government 
is spending more than it is raising by loans and 
taxes and is meeting the balance by issuing paper 
money, or because the country is under the obli- 
gation of paying increased sums to foreigners for 
the purchase of investments or in discharge of 
debts. Temporarily it may be affected by spec- 
ulation, that is to say by anticipation, whether 
well or ill founded, that one or other of the above 
influences will operate shortly; but the influence 
of speculation is generally much exaggerated, be- 
cause of the immense effect which it may exercise 
momentarily. Both influences can only operate 
through the balance of debts, due for immediate 



THE MARK EXCHANGE 101 

payment, between the country in question and the 
rest of the world : the liability to make payments 
to foreigners operating on this directly; and the 
inflation of the currency operating on it indirectly, 
either because the additional paper money stim- 
ulates imports and retards exports, by increasing 
local purchasing power at the existing level of 
values or because the expectation that it will so 
act causes anticipatory speculation. The expan- 
sion of the currency can have no effect whatever 
on the exchanges until it reacts on imports and 
exports, or encourages speculation; and as the 
latter cancels out, sooner or later, the effect of 
currency expansion on the exchanges can only last 
by reacting on imports and exports. 

These principles can be applied without difficulty 
to the exchange value of the mark since 1920. At 
first the various influences were not all operating 
in the same direction. Currency inflation tended 
to depreciate the mark; so did foreign investment 
by Germans (the ''flight from the mark"); but 
investment by foreigners in German Bonds and 
German currency (an exact line between which 
and short-period speculation it is not easy to 
draw) operated sharply in the other direction. 
After the mark had fallen to such a level that 
more than 25 marks could be obtained for a dollar, 
numerous persons all over the world formed the 
opinion that there would be a reaction some day 



102 A REVISION OF THE TREATY 

to the pre-war value, and that therefore a pur- 
chase of marks or mark Bonds would be a good 
investment. This investment proceeded on so vast 
a scale that it placed foreign currency at the 
disposal of Germany up to an aggregate value 
which has been estimated at from $800,000,000 to 
$1,000,000,000. These resources enabled Germany, 
partially at least, to replenish her food supplies 
and to restock her industries with raw materials, 
requirements involving an excess of imports over 
exports which could not otherwise have been paid 
for. In addition it even enabled individual Ger- 
mans to remove a part of their wealth from Ger- 
many for investment in other countries. 

Meanwhile currency inflation was proceeding. 
In the course of the year 1920 the note circula- 
tion of the Reichsbank approximately doubled, 
whilst on balance the exchange value of the mark 
had deteriorated only slightly as compared with 
the beginning of that year. 

Moreover, up to the end of 1920 and even dur- 
ing the first quarter of 1921 Germany had made 
no cash payments for Reparation and had even 
received cash (under the Spa Agreement) for 
a considerable part of her coal deliveries. 

After the middle of 1921, however, the various 
influences, which up to that time had partly bal- 
anced one another, began to work all in one direc- 
tion, that is to say, adversely to the value of 



THE MAKE EXCHANGE 103 

the mark. Currency inflation continued, and dur- 
ing 1921 the note circulation of the Reichsbank 
was nearly trebled, bringing it up to nearly six 
times what it had been two years earlier. Im- 
ports steadily exceeded exports in value. Some 
foreign investors in marks began to take fright 
and, so far from increasing their holdings, sought 
to diminish them. And now at last the German 
Government was called on to make important cash 
payments on Reparation account. Sales of marks 
from Germany, instead of being absorbed by for- 
eign investors, had now to be made in competition 
with sales from these same investors. Naturally 
the mark collapsed. It had to fall to a value 
at which new buyers would come forward or at 
which sellers would hold off.^ 

There is no mystery here, nothing but what is 
easily explained. The credence attached to stories 
of a "German plot" to depreciate the mark wil- 
fully is further evidence of the overwhelming pop- 
ular ignorance of the influences governing the ex- 
changes, an ignorance already displayed, to the 
great pecuniary advantage of Germany, by the 
international craze to purchase mark notes. 

In its later stages the collapse has been mainly 
due to the necessity of paying money abroad in 

* Any one, who can fully persuade himsolf of the unalterable 
truth of the proposition that every day the sales of excliange 
must exactly equal the purchases, will have gone a long way 
towards understanding the secret of the exchanges. 



104 A EEVISION" OF THE TREATY 

discharge of Reparation and in repaying foreign 
investors in marks, with the result that the fall 
in the external value of the mark has outstripped 
any figure which could be justified merely as a 
consequence of the present degree of currency 
inflation. Germany would require a much larger 
note issue than at present, if German internal 
prices were to become adjusted to gold prices at 
an exchange of more than 400 marks to the dol- 
lar.^ If, therefore, the other influences were to 
be removed, if, that is to say, the Reparation de- 
mands were revised and foreign investors were 
to take heart again, a sharp recovery might oc- 
cur. On the other hand, a serious attempt by 
Germany to meet the Reparation demands would 
cause the expenditure of her Government to ex- 
ceed its income by so great an amount, that cur- 
rency inflation and the internal price level would 
catch up in due course the external depreciation 
in the mark. 
In either event Germany is faced with an un- 

* Since there are about as many German Government Treasury 
Bills, payable at short notice, held by the public and the banks, 
other than the Reichsbank, as there are Rcichsbank notes, the 
note issue can be easily expanded as soon as the internal price 
level needs more legal tender currency to support it, even apart 
from new issues by the Government to meet the excess of their 
expenditure over their income. Do those, who would enforce on 
the German Government a cessation of "the printing press," 
intend that the outstanding Treasury Bills should be repudiated, 
if at their maturity the holders wish to be paid off in cash? 
There is no such easy solution of the overwhelming problems of 
German Public Finance. 



THE MAKK EXCHANGE 105 

fortunate prospect. If the present exchange de- 
preciation persists and the internal price level 
becomes adjusted to it, the resulting redistribu- 
tion of wealth between different classes of the 
community will amount to a social catastrophe. 
If, on the other hand, there is a recovery in the 
exchange, the cessation of the existing artificial 
stimulus to industry and of the Stock Exchange 
boom based on the depreciatihg mark may lead 
to a financial catastrophe/ Those responsible for 
the financial policy of Germany have a problem 
of incomparable difficulty in front of them. Un- 
til the Reparation liability has been settled rea- 
sonably, it is scarcely worth the while of any 
one to trouble his head about a problem which 
is insoluble. Wlien stabilization has become a 
practicable policy, the wisest course will probably 
be to stabilize at whatever level prices and trade 
seem most nearly adjusted to at that date. 

* Furthermore, every improvement in the value of the mark 
increases the real burden of what Germany owes to foreign 
holders of marks and also the real burden of the Public Debt 
on the Exchequer. A rate of exchange exceeding 400 marks to 
the dollar has at least this advantage that it has reduced these 
two burdens to very moderate dimensions. 



CHAPTER IV 

The Repaeation Bill 

The Treaty of Versailles specified the classes of 
damage iii respect of which Germany was to pay 
Reparation. It made no attempt to assess the 
amount of this damage. This duty was assigned 
to the Reparation Commission, who were in- 
structed to notify their assessment to the German 
Government on or before May 1, 1921. 

An attempt was made during the Peace Con- 
ference to agree to a figure there and then for 
insertion in the Treaty. The American delegates 
in particular favored this course. But an agree- 
ment could not be reached. There was no rea- 
sonable figure which was not seriously inadequate 
to popular expectations in France and the British 
Empire.^ The highest figure to which the Ameri- 
cans would agree, namely, 140 milliard gold 
marks, was, as we shall see later, not much above 
the eventual assessment of the Reparation Com- 
mission; the lowest figure to which France and 
Great Britain would agree, namely, 180 milliard 

* A fairly adequate account of this controversy during the 
Peace Conference can be pieced together from the following pas- 
sages: Baruch, Making of Reparation and Economic Sections of 
the Treaty, pp. 45-55; Lamont, What really happened at Paris, 
pp. 262-265; Tardieu, The Truth about the Treaty, pp. 294-309. 

106 



THE REPARATION BILL 107 

gold marks, was, as it has turned out, much above 
the amount to which they were entitled even un- 
der their own categories of claim.^ 

Between the date of the Treaty and the an- 
nouncement of its decision by the Reparation Com- 
mission, there was much controversy as to what 
this amount should be. I propose to review some 
of the details of this problem, because, if men 
are in any way actuated by veracity in interna- 
tional affairs, a just opinion about it is still rele- 
vant to the Reparation problem. 

The main contentions of The Economic Conse- 
quences of the Peace were these: (1) that the 
claims against Germany which the Allies were 
contemplating were impossible of payment; (2) 
that the economic solidarity of Europe was so 
close that the attempt to enforce these claims 
might ruin every one; (3) that the money cost 
of the damage done by the enemy in France and 
Belgium had been exaggerated; (4) that the in- 
clusion of pensions and allowances in our claims 
was a breach of faith; and (5) that our legitimate 
claim against Germany was within her capacity 
to pay. 

I have made some supplementary observations 
about (1) and (2) in Chapters III. and VI. I deal 
with (3) here and in Chapter V. with (4). These 
latter are still important. For, whilst time is so 

* For these figures see Tardieu, op. cit., p. 305. 



108 A EEVISION" OF THE TREATY 

dealing with (1) and (2) that very few people 
now dispute them, the amount of our legitimate 
claim against Germany has not been brought into 
so sharp a focus by the pressure of events. Yet 
if my contention about this can be substantiated, 
the world will find it easier to arrange a practical 
settlement. The claims of justice in this connec- 
tion are generally thought to be opposed to those 
of possibility, so that even if the pressure of 
events drives us reluctantly to admit that the 
latter must prevail, the former will rest unsatis- 
fied. If, on the other hand, restricting ourselves 
to the devastations in France and Belgium, we can 
demonstrate that it is within the capacity of 
Germany to make full reparation, a harmony of 
sentiment and action can be established. 

"With this end in view it is necessary that I 
should take up again, in the light of the fuller 
information now available, the statements which 
I made in The Economic Consequences of the 
Peace (p. 120) to the effect that "the amount 
of the material damage done in the invaded dis- 
tricts has been the subject of enormous, if nat- 
ural, exaggeration." These statements have in- 
volved me in a charge, with which Frenchmen as 
eminent as M. Clemenceau ^ and M. Poincare have 
associated themselves, that I was actuated not 

* It is of these passages that M. Clemenceau wrote as follows 
in his preface to M. Tardieu's book: '"Fort en th^me d'^cono- 
miste, M. Keynes (qui ne fut pas seul, dans la Conference, ^ 



THE REPARATION BILL 109 

by the truth but by a supposed hostility to France 
in speaking thus of the allegations of M. Klotz 
and M. Loucheur and some other Frenchmen. But 
I still urge on France that her cause may be 
served by accuracy and the avoidance of over- 
statement; that the damage she has suffered is 
more likely to be made good if the amount is 
possible than if it is impossible; and that, the 
more moderate her claims are, the more likely 
she is to win the support of the world in securing 
priority for them. M. Brenier, in particular, has 
conducted a widespread propaganda with the ob- 
ject of creating prejudice against my statistics. 
Yet to add a large number of noughts at the end 
of an estimate is not really an indication of no- 
bility of mind. Nor, in the long run, are those 
persons good advocates of France's cause who 
bring her name into contempt and her sincerity 
into doubt by using figures wildly. We shall never 
get to work with the restoration of Europe unless 
we can bring not only experts, but the public, to 
consider coolly what material damage France has 

professer cette opinion) combat, sans auciin management, Tabus 
des exigences des Allies' (lisez: 'de la France') et de ses n^go- 
ciateurg. . . . Ces reproches et tant d'autres d'une violence 
biutale, dont je n'auraia rien dit, si I'auteur, A, tous risques. n'eUt 
cru servir sa cause en lea livrant il la publicitS, font assez claire- 
ment voir jusqu'oti certains esprits s'etaient months.' (In the 
English edition, M. Tardieu has caused the words fort en thdme 
d'economiste to be translated by the words "with some knowledge 
of economics but neither imagination nor character" — ^which seems 
rather a free rendering.) 



110 A EEVISION OF THE TREATY 

suffered and what material resources of repara- 
tion Germany commands. The Times, in a lead- 
ing article which accompanied some articles by 
M. Brenier (December 4, 1920), wrote with an 
air of noble contempt — "Mr. Keynes treats their 
losses as matter for statistics." But chaos and 
poverty will continue as long as we insist on treat- 
ing statistics as an emotional barometer and as 
a convenient vehicle of sentiment. In the follow- 
ing examination of figures let us agree that we 
are employing them to measure facts and not as 
a literary expression of love or hate. 

Leaving on one side for the present the items 
of pensions and allowances and loans to Belgium, 
let us examine the data relating to the material 
damage in Northern France. The claims made 
by the French Government did not vary very 
much from the spring of 1919, when the Peace 
Conference was sitting, do^vn to the spring of 
1921, when the Reparation Commission was de- 
ciding its assessment, though the fluctuations in 
the value of the franc over that period cause 
some confusion. Early in 1919 M. Dubois, speak- 
ing on behalf of the Budget Commission of the 
Chamber, gave the figure of 65 milliard francs 
"as a minimum," and on February 17, 1919, M. 
Loucheur, speaking before the Senate as Minister 
of Industrial Reconstruction, estimated the cost 
at 75 milliards at the prices then prevailing. On 



THE REPARATION BILL 111 

September 5, 1919, M. Klotz, addressing the Cham- 
ber as Minister of Finance, put the total French 
claims for damage to property (presumably in- 
clusive of losses at sea, etc.) at 134 milliards. In 
July 1920 M. Dubois, by that time President of 
the Reparation Commission, in a Report for the 
Brussels and Spa Conferences, put the figure at 
62 milliards on the basis of pre-war prices.^ In 
January 1921 M. Doumer, speaking as Finance 
Minister, put the figure at 110 milliards. The 
actual claim which the French Government sub- 
mitted to the Reparation Commission in April 
1921 was for 127 milliard paper francs at current 
prices.^ By that time the exchange value of the 
franc, and also its purchasing power, had con- 
siderably depreciated, and, allowing for this, there 
is not so great a discrepancy as appears at first 
sight between the above estimates. 

For the assessment of the Reparation Commis- 
sion it was necessary to convert this claim from 
paper francs into gold marks. The rate to be 
adopted for this purpose was the subject of acute 
controversy. On the basis of the actual rate of 

* At about the same date, the German Indemnity Commission 
{Eeichsentschddigungskommission) estimated the cost at 7228 
million gold marks, also on the basis of pre-war prices; that is 
to say, at about one-seventli of M. Dubois' estimate. 

' The details of this claim, so far as they have been published, 
are given in Appendix No. 3. The above figure comprises the 
items for Industrial Damages, Damage to Houses, Furniture and 
Fittings, Unbuilt-on Land, State Property, and Public Works. 



112 A KEVISION OF THE TREATY 

exchange prevailing at that date (April 1921) the 
gold mark was worth about 3.25 paper francs. 
The French representatives claimed that this de- 
preciation was temporary and that a permanent 
settlement ought not to be based on it. They 
asked, therefore, for a rate of about frs. 1.50 or 
frs. 1.75 to the gold mark.^ The question was 
eventually submitted to the arbitration of Mr. 
Boyden, the American member of the Reparation 
Commission, who, like most arbitrators, took a 
middle course and decided that 2.20 paper francs 
should be deemed equivalent to 1 gold mark.^ He 
would probably have found it difficult to give a 
reason for this decision. As regards that part of 
the claim which was in respect of pensions, a fore- 
cast of the gold value of the franc, however im- 
practicable, was relevant. But as regards that 
part which was in respect of material damage, no 
such adjustment was necessary ^ ; for the French 
claim had been drawn up on the basis of the cur- 
rent costs of reconstruction, the gold equivalent 
of which need not be expected to rise with an 
increase in the gold value of the franc, an im- 

* See M. Loucheur's speech in the French Chamber, May 20, 
1921. 

^ For this rate to be justified the exchange value of the franc 
in New York must rise to about 11 cents. 

* M. Loucheur's statement to the French Chamber implied that 
the rate of conversion was applicable to material damage as well 
as to pensions, and 1 have assumed this in what follows; but 
precise official information is lacking. 



THE EEPAKATION BILL 



113 



provement in the exchacge being balanced sooner 
or later by a fall in franc prices. It might have 
been proper to make allowance for any premium 
existing, at the date of the assessment, on the 
internal purchasing power of the franc over that 
of its external exchange-equivalent in gold. But 
in April 1921 the franc was not far from its proper 
''purchasing power parity," and I calculate that 
on this basis it would have been approximately ac- 
curate to have equated the gold mark with 3 paper 
francs. The rate of 2.20 had the effect, therefore, 
of inflating the French claim against Germany 
very materially. 

At this rate the claim of 127 milliard paper 
francs for material damage was equivalent to 
57.7 milliard gold marks, of which the chief items 
were as follows: 





Francs (paper), 
millions. 


Marks (Cold), 
millious. 


Industrial damages 


38,882 
36,892 
25,119 
21,671 
1,958 
2.583 


17,673 

16,768 

11,417 

9 850 




Furniture and fittings 

Unbuilt-on land 


State property 


890 


Public works 


1 174 






Total 


127,105 


57 772 







This total is one which I believe to be a vast, 
indeed a fantastic, exaggeration beyond anything 
which it would be possible to justify under cross- 



114 A EEVISION^ OF THE TREATY 

examination. At the date when I wrote The Eco- 
nomic Consequences of the Peace, exact statistics 
as to the damage done were not available, and 
it was only possible to fix a maximum limit to a 
reasonable claim, having regard to the pre-war 
wealth of the invaded districts. Now, however, 
much more detail is available with which to check 
the claim. 

The following particulars are quoted from a 
statement made by M. Briand in the French Sen- 
ate on April 6, 1921, supplemented by an official 
memorandum published a few days later, and rep- 
resent the position at about that date : ^ 

* The figures of damage done, given by M. Briand, are generally 
speaking rather lower than those given ten months earlier (in 
June 1920) in a report by M. Tardieu in his capacity as President 
of the Comitg des Regions Devastees. But the difference is not 
very material. For purposes of comparison, I give M. Tardieu's 
figures below together with those of the amount of reconstruction 
completed at that earlier date: 

Destroyed. Repaired. 

Houses totally destroyed.. 319,269 2,000 

Houses partially destroyed 313,675 182,000 

Railway lines 5,534 kilos. 4,042 kilos. 

Canals 1,596 •' 784 " 

Roads 39,000 " 7,548 " 

Bridges, embankments, etc. 4,785 " 3,424 " 

Destroyed. ^'^X^,/j;*'°' Leveled. Plowed. 

A.rfllilp l9,r)d 

(hectares) 3,200,000 2,900,000 1,700,000 1,150,000 

rw„_x„-„-^ Reconstructed Under 
uesrroyea. ^^^^ working, reconstruction. 

Factories and works 11,500 3,540 3,812 

A much earlier estimate is that made by M. Dubois for the 
Budget Commission of the French Chamber and published as 
Parliamentary Paper No. 5432 of the Session of 1918. 



THE REPAEATION^ BILL 115 

(1) The population inhabiting the devastated 
districts in April 1921 was 4,100,000, as compared 
with 4,700,000 in 1914. 

(2) Of the cultivable land 95 per cent of the 
surface had been releveled and 90 per cent had 
been plowed and was producing crops. 

(3) 293,733 houses were totally destroyed, in 
replacement of which 132,000 provisional dwell- 
ings of different kinds had been erected. 

(4) 296,502 houses were partially destroyed, 
of which 281,300 had been repaired. 

(5) Fifty per cent of the factories were again 
working. 

(6) Out of 2404 kilometers of railway destroyed, 
practically the whole had been reconstructed. 

It seems, therefore, that, apart from refurnish- 
ing and from the rebuilding of houses and fac- 
tories, the greater part of which had still to be 
accomplished, the bulk of the devastation was al- 
ready made good out of the daily labor of France 
within two years of the Peace Conference, before 
Germany had paid anything. 

This is a great achievement, — one more demon- 
stration of the riches accruing to France from the 
patient industry of peasants, which makes her one 
of the rich countries of the world, in spite of the 
corrupt Parisian finance which for a generation 
past has wasted the savings of her investors. 
When we look at Northern France we see what 



116 A KEVISION OF THE TREATY 

honest Frenchmen can accomplish/ But when 
we turn to the money claims which are based on 
this, we are back in the atmosphere of Parisian 
finance, — so grasping, faithless, and extravagantly 

*A more recent estimate (namely, for July 1, 1921) has beea 
given, presumably from official sources, by M. Fournier-Sarlov&ze, 
Deputy for the Oise. The following are some of his figures: 

Inhabited Houses 

At the Armistice: Totally destroyed 289,147 

Badly injured 164,317 

Partially injured 258,419 

By July 1921 : Entirely rebuilt 118,863 

Temporarily repaired 182,694 

Public Buildings 





Churches. 


Municipal 
Buildings. 


Schools. 


Post 
Offices. 


Hospitals. 


Destroyed .... 

Damaged 

Restored 

Te mporarily 
patched up . . 


1,407 
2,079 
1,214 

1,097 


1,415 

2,154 

322 

931 


2,243 

3,153 

720 

2,093 


171 

271 

53 

196 


30 
197 

28 

128 



Cultivated Land 

Acres. 

At the Armistice: Totally destroyed 4,653,516 

By July 1921 : Leveled 4,067,408 

Plowed 3,528,950 

LrvE Stock 



Cattle 

Horses, donkeys, and mules 

Sheep and goats 

Pigs 



1914. 



890,084 
412,730 
958,308 
357,003 



Nov. 1918. July 1921 



57,500 
32,600 
69,100 
25,000 



478,000 
235,400 
276,700 
169,000 



THE REPAKATION BILL 117 

unveracious as to defeat in the end its own ob- 
jects. 

For let US compare some of these items of dev- 
astation with the claims lodged. 

(1) 293,733 houses were totally destroyed and 
296,502 were partially destroyed. Since nearly all 
the latter have been repaired, we shall not be 
underestimating the damage in assuming, for the 
purposes of a rough comparison, that, on the aver- 
age, the damaged houses were half destroyed, 
which gives us altogether the equivalent of 442,- 
000 houses totally destroyed. Turning back, we 
find that the French Government's claim for dam- 
age to houses was 16,768 million gold marks, that 
is to say $4,192,000,000. Dividing this sum by the 
number of houses, we find an average claim of 
$9,480, per house ! ^ This is a claim for what were 
chiefly peasants' and miners' cottages and the ten- 
ements of small country towns. M. Tardieu has 
quoted M. Loucheur as saying that the houses in 
the Lens-Courrieres district were worth 5000 
francs ($1000) a-piece before the war, but would 
cost 15,000 francs to rebuild after the war, which 
sounds not at all unreasonable. In April 1921 
the cost of building construction in Paris (which 
had been a good deal higher some months before) 
was estimated to be, in terms of paper francs, 

* Even if we assumed that every house which had been injured 
at all was totally destroyed, the figure would work out at about 
^7,000. 



118 A EEVISION OF THE TEEATY 

three and a half times the pre-war figure/ But 
even if we take the cost in francs at five times the 
pre-war figure, namely 25,000 paper francs per 
house, the claim lodged by the French Government 
is still three and a half times the truth. I fancy 
that the discrepancy, here and also under other 
heads, may be partly explained by the inclusion 
in the official French claim of indirect damages, 
namely, for loss of rent — perte de loyer. It does 
not appear what attitude the Reparation Commis- 
sion took up towards indirect pecuniary and busi- 
ness losses arising in the devastated districts out 
of the war. But I do not think that such claims 
are admissible under the Treaty. Such losses, real 
though they were, were not essentially different 
from analogous losses occurring in other areas, 
and indeed throughout the territory of the Allies. 

* M. Brenier, who has spent much time criticizing me, quotes 
with approval (The Times, January 24, 1921) a French architect 
as estimating the cost of reconstruction at an average of $2,500 
per house, and quotes also, without dissent, a German estimate 
that the pre-war average was $1,200. He also states, in the same 
article, that the munber of houses destroyed was 304,191 and the 
number damaged 290,425, or 594,616 in all. Having pointed out 
the importance of not overlooking sentiment in these questions, 
he then multiplies $2,500, not by the number of houses but by 
the number of the population, and arrives at an answer of 
$3,750,000,000. What is one to reply to sentimental multiplica- 
tion? What is the courteous retort to controversy on these lines? 
(His other figures are clearly such a mass of misprints, muddled 
arithmetic, confusion between hectares and acres and the like, 
that, whilst an attack could easily make a devastated area of 
them, it would be unfair to base any serious criticism on this 
well-intentioned farrago As a writer on these topics, M. Brenier 
is about of the caliber of M. Kaphael-Georges Levy.) 



THE KEPARATION BILL 119 

The maximum claim, however, on this head would 
not go far towards justifying the above figure, 
and we can allow a considerable margin of error 
for such additional items without impairing the 
conclusion that the claim is exaggerated. In The 
Economic Consequences of the Peace (p. 127) I 
estimated that $1,250,000,000 might be a fair es- 
timate for damage to house property; and I still 
think that this was about right. 

(2) This claim for damage to houses is ex- 
clusive of furniture and fittings, which are the 
subject of a separate claim, namely, for 11,417 
million gold marks, or about $2,850,000,000. To 
check this figure let us assume that the whole of 
the furniture and fittings were destroyed, not only 
where the houses were destroyed, but also in every 
case where a house was damaged. This is an 
overstatement, but we may set it oif against the 
fact that in a good many cases the furniture may 
have been looted and not recovered by restitution 
(a large amount has, in fact, been recovered in 
this way), although the structure of the house was 
not damaged at all. The total number of houses 
damaged or destroyed was 590,000. Dividing this 
into $2,850,000,000, we have an average of nearly 
$5,000 per house — an average valuation of the 
furniture and fittings in each peasant's or col- 
lier's house of nearly $5,000! I hesitate to guess 
how great an overstatement shows itself here. 



120 A KEYISION" OF THE TREATY 

(3) The largest claim of all, however, is for 
''industrial damages," namely, 17,673 million gold 
marks, or about $4,400,000,000. In 1919 M. I.ou- 
cheur estimated the cost of reconstruction of the 
coal mines at 2000 million francs, that is $400,- 
000,000 at the par of exchange/ As the pre-war 
value of all the coal mines in Great Britain was 
estimated at only $650,000,000, and as the pre- 
war output of the British mines was fifteen times 
that of the invaded districts of France, this figure 
seems high.- But even if we accept it, there is 
still four thousand million dollars to account for. 
The great textile industries of Lille and Roubaix 
were robbed of their raw material, but their plant 
was not seriously injured, as is shown by the fact 
that in 1920 the woolen industry of these districts 
was already employing 93.8 per cent and the cot- 
ton industry 78.8 per cent of their pre-war per- 
sonnel. At Tourcoing 55 factories out of 57 were 
in operation, and at Roubaix 46 out of 48.^ 

Altogether 11,500 industrial establishments 

*.M. Tardieu states that, on account of the subsequent rise in 
prices, M. Loucheur's estimate has proved, in terms of paper 
francs, to be inadequate. But this is allowed for by my having 
converted paper francs into dollars at the par of exchange. 

" Tlie Lens coal mines, which were the object of most complete 
desti-uction, comprised 29 pits, and had, in 1913, 16,000 workmen 
with an output of 4 million tons. 

* I take these figures from M. Tardieu, who argues, most il- 
luminatingly, in alternate chapters, according to his thesis for the 
time being, that reconstruction has hardly begun, and that it is 
nearly finished. 



THE EEPARATION BILL 121 

are said to have been interfered with, but this in- 
cludes every village workshop, and about three- 
quarters of them employed less than 20 persons. 
Half of them were at work again by the spring 
of 1921. Wliat is the average claim made on their 
behalf? Deducting the coal mines as above and 
dividing the total claim by 11,500, we reach an 
average figure of nearly $35,000. The exaggera- 
tion seems prima facie on as high a scale as in 
the case of houses and furniture. 

(4) The remaining item of importance is for 
unbuilt-on land. The claim under this head is for 
9850 million gold marks, or about $2,460,000,000. 
M. Tardieu (op. cit., p. 347) quotes Mr. Lloyd 
George as follows, in the course of a discussion 
during the Peace Conference in which he was 
pointing out the excessive character of the French 
claims: '*If you had to spend the money which 
you ask for the reconstruction of the devastated 
regions of the North of France, I assert that you 
could not manage to spend it. Besides, the land 
is still there. Although it has been badly up- 
heaved in parts, it has not disappeared. Even if 
you put the Chemin des Dames up to auction, 
you would find buyers." Mr. Lloyd George's 
view has been justified by events. In April 1921 
the French Prime Minister was able to tell his 
Senate that 95 per cent of the cultivable land had 
been releveled and that 90 per cent had been 



122 A REVISION OF THE TREATY 

plowed and was producing crops. Some go so 
far as to maintain that the fertility of the soil has 
been actually improved by the disturbance of its 
surface and by its lying fallow for several years. 
But apart from its having proved easier than was 
anticipated to make good this category of dam- 
age, the total cultivated area (excluding wood- 
land) of the whole of the eleven Departments af- 
fected was about 6,650,000 acres, of which 270,000 
acres were in the "zone of destruction," 2,000,000 
acres in the ''zone of trenches and bombardment," 
and 4,200,000 acres in the "zone of simple occu- 
pation." The claim, therefore, averaged over the 
ivhole area, works out at about $370 per acre and, 
averaged over the first two categories above, at 
more than $1000 per acre. This claim, though it 
is described as being in respect of unbuilt-on land, 
probably includes farm buildings (other than 
houses), implements, live stock, and the growing 
crops of August 1914. As experience has proved 
that the permanent qualities of the land have only 
been seriously impaired over a small area, these 
latter items should probably constitute the major 
part of the claim. We have also to allow for de- 
struction of woodlands. But even with high esti- 
mates for each of these items, I do not see how 
we could reach a total above a third of the amount 
actually claimed. 

These arguments are not exact, but they are 



THE KEPARATION BILL TZ6 

sufficiently so to demonstrate that the claim sent 
in to the Reparation Commission is untenable. I 
believe that it is at least four times the truth. 
But it is possible that I have overlooked some 
items of claim, and it is better in discussions of 
this kind to leave a wide margin for possible error. 
I assert, therefore, that on the average the claim 
is not less than two or three times the truth. 

I have spent much time over the French claim, 
because it is the largest, and because more par- 
ticulars are available about it than about the 
claims of the other Allies. On the face of it, the 
Belgian claim is open to the same criticism as the 
French. But in this claim a larger part is played 
by levies on the civilian population and personal 
injuries to civilians. The material damage, how- 
ever, was on a very much smaller scale than in 
France. Belgian industry is already working at 
its pre-war efficiency, and the amount of recon- 
struction still to be made good is not on a great 
scale. The Belgian Minister for Home Affairs 
stated in Parliament in February 1920 that at 
the date of the Armistice 80,000 houses and 1100 
public buildings had been destroyed. This sug- 
gests that the Belgian claim on this head ought 
to be about a quarter of the French claim ; but in 
view of the greater wealth of the invaded dis- 
tricts of France, the Belgian loss is probably de- 
cidedly less than a quarter of the French loss. 



124 A KEVISION OF THE TREATY 

The claim, actually submitted by Belgium, for 
property, shipping, civilians and prisoners (that 
is to say, the aggregate claim apart from pensions 
and allowances) amounted to 34,254 million Bel- 
gian francs. Inasmuch as the Belgian Ministry 
of Finance, in an official survey published in 1913, 
estimate the entire wealth of the country at 
29,525 million Belgian francs, it is evident that, 
even allowing for the diminished value of the Bel- 
gian franc, which is our measuring rod, this claim 
is very grossly excessive. I should guess that the 
degree of exaggeration is quite as great as in the 
case of France. 

The British Empire claim is, apart from pen- 
sions and allowances, almost entirely in respect 
of shipping losses. The tonnage lost and dam- 
aged is definitely known. The value of the car- 
goes carried is a matter of difficult guesswork. 
On the basis of an average of $150 for the hull and 
$200 for the cargo per gross ton lost, I estimated 
the claim in The Economic Consequences of the 
Peace (p. 132) at $2,700,000,000. The actual 
claim lodged was for $3,835,000,000. Much de- 
pends on the date at which the cost of replacement 
is calculated. Most of the tonnage was in fact 
replaced out of vessels the building of which com- 
menced before the end of the war or shortly after- 
wards, and thus cost a much higher price than 
prevailed in, e.g., 1921. But even so the claim 



THE REPAEATION" BILL 125 

lodged is very high. It seems to be based on an 
estimate of $500 per gross ton lost for hull and 
cargo together, any excess in this being set off 
against the fact that no separate allowance is 
made for vessels damaged or molested, but not 
sunk. This figure is the highest for which any 
sort of plausible argument could be adduced, 
rather than a judicial estimate. I adhere to the 
estimate which I gave in The Econofnic Conse- 
quences of the Peace. 

I forbear to examine the claims of the other 
Allies. The details, so far as they have been pub- 
lished, are given in Appendix No. 3. 

The observations made above relate to the 
claims for material damage and do not bear on 
those for pensions and allowances, which are, 
nevertheless, a very large item. These latter are 
to be calculated, according to the Treaty, in the 
case of pensions ''as being the capitalized cost at 
the date of coming into force of the Treaty, on 
the basis of the scales in force in France at such 
date," and in the case of allowances made during 
hostilities to the dependents of mobilized persons 
"on the basis of the average scale for such pay- 
ments in force in France" during each year. 
That is to say, the French Army scale is to be ap- 
plied all round ; and the result, given the numbers 
affected, should be a calculable figure, in which 
there should be little room for serious error. The 



c/ 



126 A EEVISION" OF THE TREATY 

actual claims were as follows in milliard gold 
marks : ^ 

Milliard marks 
(gold). 

France 33 

British Empire 37 

Italy 17 

Belgium 1 

Japan 1 

Roumania 4 

93 
This does not include Serbia, for which a sepa- 
rate figure is not available, or the United States. 
The total would work out, therefore, at about 100 
milliard gold marks.- 

Wliat does the aggregate of the claims work 
out at under all heads, and what relation does this 
total bear to the final assessment of the Repara- 
tion Commission? As the claims are stated in a 
variety of national currencies, it is not quite a 
simple matter to reach a total. In the following 
table French francs are converted into gold marks 
at 2.20 (the rate adopted by the Commission as 
explained above), sterling approximately at par 

* Francs are here converted at 2.20 to the gold mark and the 
f sterling at the ratio of 1:20. 

^ This is exactly the figure of the estimate which I gave in The 
Economic Consequences of the Peace (p. 160). But I there 
added: "I feel much more confidence in the approximate accuracy 
of the total figure than its division between the diff'erent 
claimants." This proviso was necessary, as I had over-estimated 
the claims of France and under-estimated those of the British 
Empire and of Italy. 



THE KEPAKATION BILL 127 

(on the analogy of the rate for francs), Belgian 
francs at the same rate as French francs, Italian 
lire at twice this rate, Serbian dinars at four times 
this rate, and Japanese yen at par. 

Milliard marks 
(gold). 

France 99 

British Empire 54 

Italy 27 

Belgium 161^ 

Japan 1^ 

Jugo-Slavia 91/^ 

Koumania 14 

Greece 2 



2231/2 



There are omitted from this table Poland and 
Czecho-Slovakia, of which the claims are probably 
inadmissible, the United States, which submitted 
no claim, and certain minor claimants shown in 
Appendix No. 3. 

In round figures, therefore, we may put the 
claims as lodged before the Keparations Commis- 
sion at about 225 milliard gold marks, of which 
95 milliards was in respect of pensions and allow- 
ances, and 130 milliards for claims under other 
heads. 

The Eeparation Commission in announcing its 
decision did not particularize as between different 
claimants or as between different heads of claim, 



128 A REVISION OF THE TREATY 

and merely stated a lump sum figure. Their fig- 
ure was 132 milliards ; that is to say, about 58 per 
cent of the sums claimed. This decision was in 
no way concerned with Germany's capacity to pay, 
and was simply an assessment, intended to be 
judicial, as to the sum justly due under the heads 
of claim established by the Treaty of Versailles. 

The decision was unanimous, but only in face of 
sharp differences of opinion. It is not suitable or 
in accordance with decency to set up a body of 
interested representatives to give a judicial de- 
cision in their own case. This arrangement was 
an offspring of the assumption which runs through 
the Treaty that the Allies are incapable of doing 
wrong, or even of partiality. 

Nothing has been published in England about 
the discussions which led up to this conclusion. 
But M. Poincare, at one time President of the 
Reparation Commission and presumably well-in- 
formed about its affairs, has lifted a corner of the 
veil in an article published in the Revue des Deux 
Mondes for May 15, 1921. He there divulges the 
fact that the final result was a compromise be- 
tween the French and the British representatives, 
the latter of whom endeavored to fix the figure at 
104 milliards, and defended this adjudication with 
skilful and even passionate advocacy.^ 

* "Elle avait ^t6 le r^sultat d'un compromis assez pSnible entre 
la delegu^ francais, I'honorable M. Dubois, et le repr^sentant 
anglais, Sir John Bradbury, depuis lors d^missionnaire, qui vou- 



THE REPARATION BILL 129 

"Wlieii the decision of the Reparation Commis- 
sion was first announced, and was found to abate 
so largely the claims lodged with it, I hailed it, 
led away a little perhaps by its very close agree- 
ment with my own predictions, as a great triumph 
for justice in international affairs. So, in a meas- 
ure, I still think it. The Reparation Commission 
went a considerable way in disavowing the verac- 
ity of the claims of the Allied Governments. In- 
deed, their reduction of the claims for items other 
than pensions and allowances must have been very 
great since the claims for pensions, being capable 
of more or less exact calculation,^ can hardly have 
been subject to an initial error of anything ap- 
proaching 42 per cent. If, for example, they re- 
duced the claim for pensions and allowances from 
95 to 80 milliards, they must have reduced the 
other claims from 130 milliards to 52 milliards, 
that is to say, by 60 per cent. Yet even so, on 
the data now available, I do not believe that their 
adjudication could be maintained before an im- 
partial tribunal. The figure of 104 milliards, at- 
tributed by M. Poincare to Sir John Bradbury, is 
probably the nearest we shaU get to a strictly im- 
partial assessment. 

lait 8'en tenir au chiflFre de cent quatre milliards et qui avait 
d^fendu la tliSse du gouvernement britannique avec une habiletfi 
paasionnee." 

* The chief question of legitimate controversy in this connec- 
tion was that of the rate of exchange for converting paper francs 
into gold marks. 



130 A KEVISION OF THE TREATY 

To complete our summary of the facts two par- 
ticulars must be added. (1) The total, as assessed 
by the Reparation Commission, comprehends the 
total claim against Germany and her Allies. It 
includes, that is to say, the damage done by the 
armies of Austria-Hungary, Turkey, and Bul- 
garia, as well as by those of Germany. Pay- 
ments, if any, made by Germany's Allies must, 
presumably, be deducted from the sum due. But 
Annex I. of the Reparation Chapter of the Treaty 
of Versailles is so drafted as to render Germany 
liable for the whole amount. (2) This total is ex- 
clusive of the sum due under the Treaty for the 
reimbursement of sums lent to Belgium by her 
Allies during the war. At the date of the London 
Agreement (May 1921) Germany's liability under 
this head was provisionally estimated at 3 mil- 
liard gold marks. But it had not then been de- 
cided at what rate these loans, which were made 
in terms of dollars, sterling, and francs, should 
be converted into gold marks. The question was 
referred for arbitration to Mr. Boyden, the 
United States Delegate on the Reparation Com- 
mission, and at the end of September 1921 he an- 
nounced his decision to the effect that the rate of 
conversion should be based on the rate of ex- 
change prevailing at the date of the Armistice. 
Including interest at 5 per cent, as provided by 
the Treaty, I estimate that this liability amounts 



PAYMENTS PEIOK TO MAY 1921 131 

at the end of 1921 to about 6 milliard gold marks, 
of which slightly more than a third is due to Great 
Britain and slightly less than a third each to 
France and the United States respectively. 

I take, therefore, as my final conclusion that 
the best available estimate of the sum due from 
Germany, under the strict letter of the Treaty of 
Versailles, is 110 milliard gold marks, which may 
be divided between the main categories of claim 
in the proportions — 74 milliards for pensions and 
allowances, 30 milliards for direct damage to the 
property and persons of civilians, and 6 milliards 
for war debt incurred by Belgium. 

This total is more than Germany can pay. But 
the claim exclusive of pensions and allowances 
should be within her capacity. The inclusion of 
a demand for pensions and allowances was the 
subject of a long struggle and a bitter controversy 
in Paris. I have argued that those were right 
who maintained that this demand was inconsistent 
with the terms on which Germany surrendered 
at the Armistice. I return to this subject in the 
next chapter. 

EXCUESUS V 

EECEIPTS AND EXPENSES PRIOR TO MAT 1, 1921 

The provision in the Treaty of Versailles that 
Germany, subject to certain deductions, was to 



132 A EEVISION OF THE TREATY 

pay $5000 millions (gold) before May 1, 1921, 
was so remarkably wide of facts and possibilities, 
that for some time past no one has said much 
about this offspring of the unimaginative imag- 
inations of Paris. As it was totally abandoned by 
the London Agreement of May 5, 1921, there is no 
need to return to what is an obsolete controversy. 
But it is interesting to record what payments Ger- 
many did actually effect during the transitional 
period. 

The following details are from a statement pub- 
lished by the British Treasury in August 1921 : 

Approximate Statement by the Reparation Commis- 
sion OF Deliveries made by Germany from No- 
vember 11, 1918, TO April 30, 1921 

Gold Marks. 

Eeeeipts in cash 99,334,000 

Deliveries in kind: 

Ships 270,331,000 

Coal 437,160,000 

Dyestuffs 36,823,000 

Other deliveries 937,040,000 

1,780,688,000 
Immovable property and assets 

not yet encashed 2,754,104,000 

4,534,792,000 
say $1,130,000,000 

The immovable property consists chiefly of the 
Saar coalfields surrendered to France, State prop- 



PAYMENTS PRIOR TO MAY 1921 133 

erty in Sclileswig surrendered to Denmark, and 
State property (with certain exceptions) in the 
territory transferred to Poland. 

The whole of the cash, two-thirds of the ships, 
and a quarter of the dyestuffs accrued to Great 
Britain. A share of the ships and dyestuffs, the 
Saar coalfields, the bulk of the coal and of the 
'* other deliveries," including valuable materials 
left behind by the German Army, accrued to 
France. Some ships, a proportion of the coal and 
other deliveries, and the compensation, payable by 
Denmark in respect of Sclileswig, fell to Belgium. 
Italy obtained a portion of the coal and ships and 
some other trifles. The value of German State 
property in Poland could not be transferred to 
any one but Poland. 

But the sums thus received were not available 
for Reparation. There had to be deducted from 
them (1) the sums returned to Germany under the 
Spa Agreement, namely 360,000,000 gold marks,^ 
and (2) the costs of the Armies of Occupation. 

In September 1921 the Reparation Commission 
published an approximate estimate, as follows, of 
the cost of occupation of German territory by the 
Allied Armies from the Armistice until May 1, 
1921: 



* Made iip of about £5,500,000 advanced by Great Britain, 
772,000.000 francs by France, 96,000,000 francs by Belgium, 
147,000,000 lire by Italy, and 56,000,000 francs by Luxembourg. 



134 



A EEVISION OF THE TREATY 



United States 
Great Britain 

France 

Belgium .... 
Italy 



Total cost. 



$278,067,610 

£52,881,298 

Frs. 2,304,850,470 

Frs. 378,731,390 

Frs. 15,207,717 



Cost per man 
per day. 



$4.50 

14s. 

Frs. 15.25 

Frs. 16.50 

Frs. 22 



The conversion of these sums into gold marks 
raises the usual controversy as to the rates at 
which conversion is to be effected. The total 
was estimated, however, at three milliard gold 
marks,^ of which one milliard was owed to the 
United States, one milliard to France, 900 millions 
to Great Britain, 175 millions to Belgium, and 5 
millions to Italy. On May 1, 1921, France had 
about 70,000 soldiers on the Rhine, Great Britain 
about 18,000, and the United States a trifling num- 
ber. 

The net result of the transitional period was, 
therefore, as follows: 

(1) Putting on one side State property trans- 
ferred to Poland, the whole of the transferable 

* The German authorities have published a somewhat higher 
figure. According to a memorandum submitted to the Reichstag 
in September 1921 by their Finance Minister, the costs of the 
Armies of Occupation and the Rhine Provinces Commission up 
to the end of March 1921 were mks. 3,936,954,542 (gold), in 
respect of expenditure met in the first instance by the occupying 
Powers, and subsequently recoverable from Germany, plus mks. 
7,313,911,829 (paper), in respect of expenditure directly met by 
tJie German authorities. 



PAYMENTS PEIOR TO MAY 1921 135 

wealth obtained from Germany in the two and a 
half years following the Armistice under all the 
rigors of the Treaty, designed as they were to 
extract every available liquid asset, just about 
covered the costs of collection, that is to say, the 
expenses of the Armies of Occupation, and left 
nothing over for Reparation. 

(2) But as the United States has not yet been 
paid the milliard owing to her for her Army, the 
other Allies have received between them on bal- 
ance a surplus of about one milliard. This sur- 
plus was not divided amongst them equally. Great 
Britain had received 450-500 million gold marks 
less than her expenses, Belgium 300-350 million 
more than her expenses, and France 1000-1200 
millions more than her expenses.^ 

Under the strict letter of the Treaty those Al- 
lies who had received less than their share might 
have claimed to be paid the difference in cash by 
those who had received more. This situation and 
the allocation of the milliard paid by Germany 
between May and August 1921 were the subject 
of the Financial Agreement provisionally signed 
at Paris on August 13, 1921. This Agreement 
chiefly consisted of concessions to France, partly 
by Belgium, who agreed in effect to a partial post- 



^ I do not vouch for the accuracy of these figures, which are 
rough estimates of my own on the basis of incomplete published 
information. . 



136 A REVISION OF THE TREATY 

ponement of her priority charge on two milliards 
out of the first sums received from Germany for 
Eeparation, and partly by Great Britain, who ac- 
cepted for the purposes of internal accounting 
amongst the Allies themselves a lower value for 
the coal delivered by Germany than the value fixed 
by the Treaty/ In view of these concessions 
about future payment, the first milliard in cash, 
received after May 1, 1921, was divided between 
Great Britain and Belgium, the former receiving 
450 million gold marks in discharge of the balance 
still due to her in respect of the costs of occupa- 
tion, and the balance falling to the latter as a fur- 
ther instalment of her agreed priority charge. 
This Agreement was represented in the French 
press as laying new burdens upon France, or at 
least as withdrawing existing rights from her. 
But this was not the case. The Agreement was 
directed throughout to moderating the harshness 
with which the letter of the Treaty and the ar- 
rangements of Spa would have operated against 
France.- 

* On the other hand Great Britain's view was adopted as to 
the valuation of shipping. 

* In view of the political difficulties in which this Agreement 
involved M. Briand's Cabinet, the matter was apparently adjusted 
by Great Britain and Belgium receiving their quotas as above, 
"subject to adjustment of the final settlement" of the questions 
dealt with in the Agreement. The net result on September 30, 
1921, was tliat, including the above simi. Great Britain had been 
repaid £5,445,000 in respect of the Spa coal advances, and had 
also received, or was in course of collecting, about £43,000,000 



PAYMENTS PKIOR TO MAY 1921 137 

The actual value of these deliveries is a strik- 
ing example of how far the value of deliverable 
articles falls below the estimates which used to be 
current. The Reparation Commission have stated 
that the credit which Germany will receive in re- 
spect of her Mercantile Marine will amount to 
about 755 million gold marks. This figure is low, 
partly because many of the ships were disposed of 
after the slump in tonnage.^ Nevertheless, this 
was one of the tangible assets of great value, which 
it was customary at one time to invoke in answer 
to those who disputed Germany's capacity to make 
vast payments. What does it amount to in rela- 
tion to the bill against her? The bill is 138 mil- 
liard gold marks, on which interest at 6 per cent 
for one year is 8280 million gold marks. That is 
to say, Germany's Mercantile Marine in its en- 
tirety, of which the surrender humbled so much 
pride and engulfed so vast an effort, would about 
meet a month's charges. 

towards the expenses of the Army of Occupation (approximately 
£50,000,000 ) . Thus, as the result of three years' Reparations, 
Great Britain's costs of collection had been about £7,000,000 
more than her receipts. 

* To value these ships at what they fetched during the aliunp, 
yet to value Germany's liability for submarine destruction at 
what the ships cost to replace during the boom, appears to be 
unjust. My estimate (in The Economio Consequences of the 
Peace, p. 174) of the value of the ships to be delivered was 
$600,000,000. 



138 A KEVISION OF THE TREATY 

EXCUESUS VI 
THE DIVISION OF RECEIPTS AMONGST THE ALLIES 

The Allied Governments took advantage of the 
Spa meeting (July 1920) to settle amongst them- 
selves a Reparation question which had given 
much trouble in Paris and had been left unsolved ^ 
— namely, the proportions in which the Repara- 
tion receipts are to be divided between the various 
Allied claimants.^ The Treaty provides that the 
receipts from Germany will be divided by the 
Allies "in proportions which have been deter- 
mined upon by them in advance, on a basis of gen- 
eral equity and of the rights of each." The 
failure, described by M. Tardieu, to reach an 
agreement in Paris, rendered the tense of this 
provision inaccurate, but at Spa it was settled as 
follows : 

France 52 per cent. 

British Empire ^ 22 

Italy 10 

Belgium 8 " 

Japan and Portugal . . % of 1 per cent each ; 

'M. Tardieu {The Truth about the Treaty, pp. 346-348) has 
given an account of the abortive discussion of this question at the 
Peace Conference. 'ITie French obtained at Spa a ratio very 
slightly more favorable to themselves than that which they had 
claimed and Mr. Lloyd George had rejected at Paris. 

' For a summary of the text of this Agreement see Appendix 
No. I. 

• At the conference of Dominion Prime Ministers in July 1921 



THE DIVISION OF THE RECEIPTS 



139 



the remaining 6Yz per cent being reserved for the 
Serbo-Croat-Slovene State and for Greece, Ru- 
mania, and other Powers not signatories of the 
Spa Agreement/ 

This settlement represented some concession on 
the part of Great Britain, whose proportionate 
claim was greatly increased by the inclusion of 
pensions beyond what it would have been on the 
basis of Reparation proper; and the proportion 
claimed by Mr. Lloyd George in Paris was prob- 
ably nearer the truth (namely that the French and 
British shares should be in the proportion 5 to 
3). I estimate that France 45 per cent, British 
Empire 33 per cent, Italy 10 per cent, Belgium 
6 per cent, and the rest 6 per cent would have been 
more exactly in accordance with the claims of each 
under the Treaty. In view of all the facts, how- 
ever, the Spa division may be held to have done 
substantial justice on the whole. 

At the same time the priority to Belgium to the 
extent of $500,000,000 was confirmed; and it was 



this share was further divided aa follows between the constituent 
portions of the Empire: 



United Kingdom 86.85 

Minor colonies 80 

Canada 4.35 

Australia 4 35 



New Zealand 1.75 

South 2Vfrica CO 

Newfoundland 10 

India 1.20 



' The Spa Agreement also made provision that half the receipts 
from Bulgaria and from the constituent parts of the former 
Austro-Hungarian Empire should be divided in the above propor- 
tions, and tliat, of the other half, 40 per cent should go to Italy 
and 60 per cent to Greece, Rumania, and Jugoslavia. 



140 A KEVISION OF THE TEEATY 

agreed that the loans made to Belgium during the 
war by the other Allies, for which Germany is 
liable under Article 232 ^ of the Treaty, should 
be dealt with out of the moneys next received. 
These loans, including interest, will amount by 
the end of 1921 to something in the neighborhood 
of $1,500,000,000, of which $550,000,000 will be due 
to Great Britain, $500,000,000 to France, and 
$450,000,000 to the United States. 

Under the Spa Agreement, therefore, sums re- 
ceived from Germany in cash, and credits in re- 
spect of deliveries in kind were to be applied to 
the discharge of her obligations in the following 
order : 

1. The cost of the Armies of Occupation, esti- 
mated at $750,000,000 up to May 1, 1921. 

2. Advances to Germany for food purchases un- 
der the Spa Agreement, say $90,000,000. 

3. Belgian priority of $500,000,000. 

4. Repayment of Allied advances to Belgium, 
say $1,500,000,000. 

This amounts to about $2,850,000,000 altogether, 
of which I estimate that about $750,000,000 is due 
to France, $850,000,000 to Great Britain, $550,- 

* "Germany undertakes ... to make reimbursement of all 
sums which Belgium has borrowed from the Allies and Associated 
Governments up to November 11, 1918, together with interest at 
the rate of 5 per cent per annum on such sums." The priority 
for this repayment arranged at Spa is a little different from the 
procedure contemplated in the Treaty, which provided for repay- 
ment not later than May 1, 1926. 



THE DIVISION OF THE RECEIPTS 141 

000,000 to Belgium, and $700,000,000 to the United 
States. 

Very few people, I think, have appreciated how 
large a sum is due to the United States under the 
strict letter of the Agreement. Since France has 
already received almost two-thirds of her share as 
above, whilst Belgium has had about one-third, 
Great Britain less than one-third, and the United 
States nothing, it follows that, even on the most 
favorable hypothesis as to Germany's impending 
payments, comparatively small sums are strictly 
due to France in the near future. 

The Financial Agreement of August 13, 1921, 
was aimed at modifying the harshness of these 
priority provisions towards France.^ The details 
of this Agreement have not yet been published, but 
it is said to make a somewhat different provision 
from that contemplated at Spa for the repayment 
of Allied war advances to Belgium. 

The reception of this Agreement by the French 
public was a good illustration of the effect of 
keeping people in the dark. The effect of the Spa 
Agreement had never been understood in France, 
with the result that the August Financial Agree- 
ment, which much improved France's position, 
was believed to interfere seriously with her ex- 
isting rights. M. Doumer never had the pluck to 
tell his public the truth, although, if he had, it 

* See above, p. 135. 



142 A REVISION OF THE TREATY 

would have been clear that, in signing the Agree- 
ment provisionally, he was acting in the interests 
of his country. 

The mention of the United States invites atten- 
tion to the anomalous position of that country 
under the Peace Treaty. Her failure to ratify 
the Treaty forfeits none of her rights under it, 
either in respect of her share of the costs of the 
Army of Occupation (which, however, is offset to 
a small extent by the German ships she has re- 
tained), or in respect of the repayment of her war 
advances to Belgium.^ It follows that the United 
States is entitled, on the strict letter, to a con- 
siderable part of the cash receipts from Germany 
in the near future. 

There is, however, a possible offset to these 
claims which has been mentioned already (p. 78) 
but must not be overlooked here. Under the 
Treaty, private German property in an Allied 
country is, in the case of countries adopting the 
Clearing House Scheme, applied in the first in- 
stance to debts owing from German nationals to 
the nationals of the Allied country in question, and 

' Article 1 of the Treaty of Peace between Germany and the 
United States, signed on August 25, 1921, and since ratified, 
expressly stipulates that Germany undertakes to accord to the 
United States all the rights, privileges, indemnities, reparations, 
and advantages specified in the joint resolution of Congress of 
July 2, 1921, "Including all the rigiita and advantages stipulated 
for the benefit of the United States under the Treaty of Versailles 
which the United States shall enjoy notwithstanding the fact that 
such Treaty has not been ratified by the United States." 



THE DIVISION OF THE RECEIPTS 143 

the balance, if any, is retained for Reparation. 
What is to happen in the case of similar German 
assets in the United States is still undetermined. 
The surplus assets, the value of which may be 
about $300,000,000,' will be retained, until Con- 
gress determines otherwise, by the Enemy Prop- 
erty Custodian. There have been negotiations 
from time to time for a loan in favor of Germany 
on the security of these assets, but the legal posi- 
tion has rendered progress impossible. At any 
rate this important German asset is still under 
American control. 

* According to a statement publislied in Washington in August 
1921 the Custodian had in his hands German property to the 
value of $314,179,463. 



CHAPTER V 
The Legality of the Claim foe Pensions 

"The application of morals to international politics is more a 
thing to be desired than a thing which has been in operation. 
Also, when 1 am made a participant in crime along with many 
millions of other people, I more or less shrug my shoulders." — 
Letter from a friendly critic to the author of The Economic Con- 
sequences of the Peace. 

We have seen in the preceding chapter that the 
claim for Pensions and Allowances is nearly- 
double that for Devastation, so that its inclusion 
in the Allies' demands nearly trebles the bill. It 
makes the difference between a demand which can 
be met and a demand which cannot be met. There- 
fore it is important. 

In The Economic Consequences of the Peace I 
gave reasons for the opinion that this claim was 
contrary to our engagements and an act of inter- 
national immorality. A good deal has been writ- 
ten about it since then, but I cannot admit that 
my conclusion has been seriously disputed. Most 
American writers accept it ; most French writers 
ignore it; and most English writers try to show, 
not that the balance of evidence is against me, but 
that there are a few just plausible, or just not- 
negligible, observations to be made on the other 

144 



LEGALITY OF THE CLAIM FOR PENSIONS 145 

side. Their contention is that of the Jesuit pro- 
fessors of Probabilism in the seventeenth century, 
namely that the Allies are justified unless it is ab- 
solutely certain that they are wrong, and that any 
probability in their favor, however small, is 
enough to save them from mortal sin. 

But most people in the countries of Germany's 
former enemies are not ready to excite themselves 
very much, even if my view is accepted. The pas- 
sage at the head of this chapter describes a com- 
mon attitude. International politics is a scoun- 
drel's game and always has been, and the private 
citizen can scarcely feel himself personally re- 
sponsible. If our enemy breaks the rules, his ac- 
tion may furnish us with an appropriate oppor- 
tunity for expressing our feelings; but this must 
not be taken to commit us to a cool opinion that 
such things have never happened before and must 
never happen again. Sensitive and honorable pa- 
triots do not like it, but they ''more or less shrug" 
their shoulders. 

There is some common sense in this. I cannot 
deny it. International morality, interpreted as 
a crude legalism, might be very injurious to the 
world. It is at least as true of these vast-scale 
transactions, as of private affairs, that we judge 
wrongly if we do not take into account everything. 
And it is superficial to appeal, the other way 
round, to the principles which do duty when 



146 A KEVISION OF THE TREATY 

Propaganda is blistering herd emotion with its 
brew of passion, sentiment, self-interest, and 
moral fiddlesticks. 

But whilst I see that nothing rare has happened 
and that men's motives are much as usual, I do 
still think that this particular act was an excep- 
tionally mean one, made worse by hypocritical 
professions of moral purpose. My object in re- 
turning to it is partly historical and partly prac- 
tical. New material of high interest is available 
to instruct us about the course of events. And if 
for practical reasons we can agree to drop this 
claim, we shall make a settlement easier. 

Those who think that it was contrary to the 
Allies' engagements to charge pensions against 
the enemy base this opinion on the terms notified 
to the German Government by President Wilson, 
with the authority of the Allies, on November 5, 
1918, subject to which Germany accepted the 
Armistice conditions.^ The contrary opinion that 
the Allies were fully entitled to charge pensions 
if they considered it expedient to do so, has been 
supported by two distinct lines of argument : first 
that the Armistice conditions of November 11, 
1918, were not subject to President Wilson's noti- 
fication of November 5, 1918, but superseded it, 

* I have given the exact text of the relevant passages In The 
Economic Consequences of the Peace, chapter v. 



LEGALITY OF THE CLAIM FOR PENSIONS 147 

more particularly regarding Reparation; and al- 
ternatively that the wording of President Wilson's 
notification properly understood does not exclude 
Pensions. 

The first line of argument was adopted by M. 
Klotz and the French Government during the 
Peace Conference, and has been approved more 
recently by M. Tardieu.^ It was repudiated by the 
whole of the American Delegation at Paris, and 
never definitely supported by the British Govern- 
ment. Responsible writers about the Treaty, 
other than French, have not admitted it.^ It was 
also explicitly abandoned by the Peace Confer- 
ence itself in its reply to the German observa- 
tions on the first draft of the Treaty. The sec- 
ond line of argument was that of the British Gov- 
ernment during the Peace Conference, and it was 
an argument on these lines which finally converted 
President Wilson. I will deal with the two argu- 
ments in turn. 

1. Various persons have published particulars, 
formerly confidential, which allow us to recon- 

> The Truth about the Treaty, p. 208. 

* E.g., The History of the Peace Conference of Paris, published 
under the auspices of the Institute of International Affairs de- 
livers judgment as followa (vol. ii., p. 43) : "It is this statement 
then {i.e., President Wilson's notification of Nov. 5, 1918) which 
must be taken as the ruling document in any discussion as to 
what the Allies were entitled to claim by way of reparation in 
the Treaty of Peace, and it is difficult to interpret it otherwise 
than as a deliberate limitation of their undoubted right to 
recover the whole of their war costs." 



148 A REVISION OF THE TEEATY 

struct the course of the discussions about the 
Armistice. These begin with the examination of 
the Armistice Terms by the Allied Council of War 
on November 1, 1918/ 

The first point which emerges is that the reply 

' The following particulars are taken from Les Negociations 
Secretes et les Quatre Armistices avec pieces justificatives by 
"Mermeix," published at Paris by Ollendorff, 1921. This remark- 
able volume has not received the attention it deserves. The 
greater part of it consists of a verbatim transcript of the secret 
Proccs Verbaux of those meetings of the Supreme Council of the 
Allies which were concerned with the Armistice Terms. On the 
face of it this disclosure is authentic and is corroborated in part 
by M. Tardieu. There are many passages of extraordinary in- 
terest on points not connected with my present topic, as for 
example the discussion of the question whether the Allies should 
insist on the surrender of the German fleet if the Germans made 
trouble about it. Marshal Foch emerges from this record very 
honorably, as determined that nothing unnecessary should be de- 
manded of the enemy, and that no blood should be spilt for a 
vain or trifling object. Sir Douglas Haig was of the same opinion. 
In reply to Col. House, Foch spoke thus: "If they accept the 
terms of the Armistice we are imposing on them, it is a capitula- 
tion. Such a capitulation gives us everything we could get from 
the greatest victory. In such circumstances I cannot admit that 
I have the right to risk the life of a single man more." Aud 
again on October 31: "If our conditions are accepted we can wish 
for nothing better. We make war only to attain our ends, and 
we do not want to prolong it uselessly." In reply to a proposal 
by Mr. Balfour that the Germans in evacuating the East should 
leave one-third of their arms behind them, Foch observed: "The 
intrusion of all these clauses makes our document chimerical, 
since the greater part of the conditions are incapable of being 
executed. We should do well to be sparing with these um'ealizable 
injunctions." Towards Austria also he was humane and feared 
the prolongation of the blockade which the politicians were pro- 
posing. "I intervene," he said on October 31, 1918, "in a matter 
which is not a military one strictly speaking. We are to main- 
tain the blockade until Peace, that is to cay until we have made 
a new Austria. That may take a long time; which means a 
country condemned to famine and perhaps impelled to anarchy." 



.\ 



LEGALITY OF THE CLAIM FOR PENSIONS 149 

of the Allied Governments to President Wilson 
(which afterwards furnished the text of his noti- 
fication of Nov. 5, 1918, addressed to Germany), 
defining their interpretation of the references to 
Reparation in the Fourteen Points, was drawn up 
and approved at the smne session of the Supreme 
Council (that of November 1, 2) which drew up 
the relevant clauses of the Armistice Terms ; and 
that the Allies did not finally approve the reply 
to President Wilson until after that they had ap- 
proved that very draft of the Armistice Terms 
which, according to the French contention, super- 
seded and negatived the terms outlined in the 
reply to President Wilson/ 

The record of the proceedings of the Supreme 
Council (as now disclosed) lends no support to 
the existence in their minds of the duplicity which 
the French contention attributes to them. On the 
other hand, it makes it clear that the Council did 
not intend the references to Reparation in the 
Armistice Terms to modify in any way their reply 
to the President. 

The record, in so far as it is relevant to this 
point, may be summarized as follows : ^ M. Cle- 
meneeau called attention to the absence of any ref- 
erence in the first draft of the Armistice Terms 
to the restitution of stolen property or to repa- 

* This is corroborated by M. Tardieu, op. cit., p. 71. 

• See Mermeix, op. cit., pp. 226-250. 



150 A KEVISION" OF THE TREATY 

ration. Mr. Lloyd George replied that there 
ought to be some reference to restitution, but that 
reparation was a Peace condition rather than an 
Armistice condition. M. Hymans agreed with 
Mr. Lloyd George. MM. Sounino and Orlando 
went further and thought that neither had any 
place in the Armistice Terms but were ready to 
accept the Lloyd George-Hymans compromise of 
including Restitution but not Reparation. The 
discussion w^as postponed for M. Hymans to draft 
a formula. On its resumption next day, it was 
M. Clemenceau who produced a formula consist- 
ing of the three words Reparation des dommages. 
M. Hymans, M. Sonnino, and Mr. Bonar Law all 
expressed doubt whether this was in place in the 
Armistice Terms. M. Clemenceau replied that he 
only wanted to mention the principle, and that 
French public opinion would be surprised if there 
was no reference to it. Mr. Bonar Law ob- 
jected: ''It is already mentioned in our letter to 
President Wilson which he is about to communi- 
cate to Germany. It is useless to repeat it."^ 
This observation met with no contradiction, but 
it was agreed on sentimental grounds and for the 
satisfaction of public opinion to add M. Clemen- 
ceau 's three words. The Council then passed on 



' This very important remark by Mr. Bonar Law is also quoted 
by M. Tardieu (op. cit., p. 70) and is therefore of undoubted 
authenticity. 



LEGALITY OF THE CLAIM FOK PENSIONS 151 

to other topics. At the last moment, as they were 
about to disperse, M. Klotz slipped in the words : 
"It would be prudent to put at the head of the 
financial questions a clause reserving the future 
claims of the Allies, and I propose to you the 
wording 'without prejudice to any subsequent 
claims and demands on the part of the Allies.' " ^ 
It does not seem to have occurred to any of those 
present that this text could be deemed of mate- 
rial importance or otherwise than as protecting 
the Allies from the risk of being held to have sur- 
rendered any existing claims through failure to 
mention them in this document; and it was ac- 
cepted without discussion. M. Klotz afterwards 
boasted that by this little device he had abolished 
the Fourteen Points, so far as they affected Repa- 
ration and Finance (although the very same meet- 
ing of the Allies had despatched a Note to Presi- 
dent Wilson accepting them), and had secured to 
the Allies the right to demand from Germany the 
whole cost of the War. But I think the world 
will decide that the Supreme Council was right 
in attaching to these words no particular impor- 
tance. Personal pride in so smart a trick has led 
M. Klotz, and his colleague M. Tardieu, to per- 

* "II serait prudent de mettre en tete des questions financiferes 
une clause reservant les revendications futures des Allies et je 
voua propose le texte suivant: 'Sous reserve de toutes revendica- 
tions et reclamations ult6rieures de la part des Allies.' " 



152 A REVISION OF THE TEEATY 

sist too long with a contention which decent per- 
sons have now abandoned. 

There was an episode Avhich has lately come to 
light connected with this passage which may be 
recounted as illustrating the pitfalls of the world. 
As M. Klotz only introduced his form of words 
as the Council was breaking up, it is likely that 
no undue attention was concentrated on it. But 
ill-fortune may dog any one, and the same state 
of affairs seems to have led to one of the scribes 
getting the words down wrong. Instead of re- 
vendication which means demand, the word renon- 
ciation which means concession got written in the 
text handed to the Germans for signature.^ This 
word was not so suitable. But M. Klotz suffered 
less inconvenience from this mistake than might 
have been expected; since at the Peace Confer- 
ence no one noticed that the French text of the 
Armistice Agreement as officially circulated, which 
M. Klotz used in arguing before the Reparation 
Committee, agreed in its w^ording with what he 
had intended it to be and not with the text which 
Germany had actually signed. Nevertheless it is 
the word renonciation which is still to be found in 
the official texts of the British and German Gov- 
ernments.^ 

' That is to say, this text ran, "Sous reserve de toute renoncia- 
tion et reclamation ult^rieure," instead of "Sous reserve de toutes 
revendications et reclamations ulterieures." 

' I record this episode as an historical curiosity. In my opinion 



LEGALITY OF THE CLAIM FOE PENSIONS 153 

2. The other line of argument raises more subtle 
intellectual issues and is not a mere matter of 
prestidigitation. If it be granted that our rights 
are governed by the terms of the Note addressed 
tc Germany by President Wilson in the name of 
the Allies on November 5, 1918, the question de- 
pends on the interpretation of these terms. As 
Mr. Baruch and M. Tardieu have now published 
between them the greater part of the official re- 
ports (including very secret documents) bearing 
on the discussion of this problem during the Peace 
Conference, we are in a better position than be- 
fore to assess the value of the Allies' case. 

The pronouncements by the President which 
were to form the basis of Peace provided that 
there should be *'no contributions" and "^no puni- 
tive damages," but the invaded territories of Bel- 
gium, France, Rumania, Serbia, and Montenegro 
were to be restored. This did not cover losses 
from submarines or from air raids. Accordingly 
the Allied Governments, when they accepted the 

it makes no material diflference to the argument whether the text 
runs "revendications et reclamations" or "renonciation et recla- 
mation"; for I regard either form of words as merely a protective 
phrase. But the plausibility of M. Klotz's position is decidedly 
weakened (if so weak a case is capable of further weakening) if 
it is the latter phrase which is authentic. The Editor of the 
Institute of International Affairs' History of the Pence Confer' 
ence of Paris, who was the first to discover and publish the 
discrepancy in question (vol. v., pp. 370-372), takes the view that 
the question of which text is used makes a material difference to 
the value of M. Klotz's argument. 



154 A REVISIOISr OF THE TEEATY 

President's formulas, embodied a reservation, on 
the point as to what ''restoration" covered, in 
the following sentence: "By it (i.e., restoration of 
invaded territory) they understand that compen- 
sation will be made by Germany for all damage 
done to the civilian population of the Allies and 
to their property by the aggression of Germany 
by land, by sea, and from the air." 

The natural meaning and object of these words, 
which, the reader must remember, are introduced 
as an interpretation of the phrase "restoration 
of invaded territory," is to assimilate submarine 
and cruiser aggression by sea and aeroplane and 
airship aggression by air to military aggression 
by land, which, in all the circumstances, was a rea- 
sonable extension of the phrase, provided it was 
duly notified beforehand. The Allies rightly ap- 
prehended that, if they accepted the phrase as it 
stood, "restoration of invaded territory" might 
be limited to damage resulting from military ag- 
gression by land. 

This interpretation of the reservation of the 
Allied Governments, namely that it assimilated 
offensive action by sea or air to offensive action 
by land, but that "restoration of invaded terri- 
tory" could not possibly include pensions and 
separation allowances, was adopted by the Amer- 
ican Delegation at Paris. They construed the 
German liability to be in respect of the "direct 



LEGALITY OF THE CLAIM FOR PENSIONS 155 

physical damage to property of non-military char- 
acter and direct physical injury to civilians ^^ 
caused by such aggression; the only further lia- 
bility which they admitted being under a differ- 
ent part of the President's pronouncements, 
namely, those relating to breaches of International 
law, such as the breach of the Treaty of Neutral- 
ity in favor of Belgium, and the illegal treatment 
of prisoners of war. 

I doubt if any one would ever have challenged 
this interpretation if the British Prime Minister 
had not won a General Election by promises to 
extract from Germany more than this interpreta- 
tion could justify,' and if the French Government 
also had not raised unjustifiable expectations. 
These promises were made recklessly. But it was 
not easy for their authors to admit, so soon after 
they had been given, that they were contrary to 
our engagements. 

The discussion opened with the delegations, 
other than the American, claiming that we had not 
committed ourselves to anything w^iich precluded 
our demanding from Germany all the loss and 
damage, direct and indirect, which had resulted 

* Baruch, op. cit., p .10. 

» As Mr. Baruch puts it (op. cit., p. 4) : "At an election held 
after the Armistice and agreement as to the basic terms of peace, 
the English people, by an overwhelming majority, returned to 
power their f'rime Minister on the basis of an increase in the 
severity of these terms of the peace, ebpecially those of repara,- 
tion." (The italics are mine.) 



156 A KEVISION OF THE TREATY 

from the war. "One of the Allies," says Mr. 
Baruch, ''went even further, and made claim for 
loss and damage resulting from the fact that the 
Armistice was concluded so unexpectedly that the 
termination of hostilities involved it in financial 
losses." 

Various arguments were employed in the early 
stages, the British delegates to the Reparation 
Committee of the Peace Conference, namely, Mr. 
Hughes, Lord Sumner and Lord Cunliffe, sup- 
porting the demand for complete war costs and 
not merely reparation for damage. They urged 
(1) that one of the principles enunciated by Presi- 
dent Wilson was that each item of the Treaty 
should be just, and that it was in accordance with 
the general principles of justice to throw on Ger- 
many the whole costs of the war; and (2) that 
Great Britain's war costs had resulted from Ger- 
many's breach of the Treaty of Neutrality of Bel- 
gium, and that therefore Great Britain (but not 
necessarily, on this argument, all the other Al- 
lies) was entitled to complete repayment in ac- 
cordance with the general principles of Interna- 
tional law. These general arguments were, I 
think, overwhelmed by the speeches made on be- 
half of the American delegates by Mr. John Fos- 
ter Dulles. The following are extracts from what 
he said: "If it is in accordance with our senti- 
ment that the principles of reparation be severe, 



LEGALITY OF THE CLAIM FOE PENSIONS 157 

and in accord with our material interest that these 
principles be all inclusive, why, in defiance of these 
motives, have we proposed reparation in certain 
limited ways only? It is because, gentlemen, we 
do not regard ourselves as free. We are not 
here to consider as a novel proposal what repa- 
ration the enemy should in justice pay; we have 
not before us a blank page upon which we are free 
to write what we will. We have before us a page, 
it is true; but one which is already filled with 
writing, and at the bottom are the signatures of 
Mr. Wilson, of Mr. Orlando, of M. Clemenceau, 
and of Mr. Lloyd George. You are all aware, I 
am sure, of the writing to which I refer : it is the 
agreed basis of peace with Germany." Mr. 
Dulles then recapitulated the relevant passages 
and continued: ''Can there be any question that 
this agreement does constitute a limitation? It 
is perfectly obvious that it was recognized at the 
time of the negotiations in October and Novem- 
ber 1918 that the reparation then specified for 
would limit the Associated Governments as to the 
reparation which they could demand of the enemy 
as a condition of peace. The whole purpose of 
Germany was to ascertain the maximum which 
would be demanded of her in the terms of peace, 
and the action of the Allies in especially stipulat- 
ing at that time, for an enlargement of the orig- 
inal proposal respecting reparation is explicable 



158 A REVISION" OF THE TREATY 

only on the theory that it was understood that 
once an agreement was concluded they would no 
longer be free to specify the reparation which. 
Germany must make. We have thus agreed that 
we would give Germany peace if she would do 
certain specified things. Is it now open to us to 
say, 'Yes, but before you get peace you must do 
other and further things'? We have said to Ger- 
many, ' You may have peace if among other things 
you perform certain acts of reparation which will 
cost you, say, ten million dollars.' Are we not 
now clearly precluded from saying, 'You can have 
peace provided you perform other acts of repara- 
tion which will bring your total liability to many 
times that which was originally stipulated'? No; 
irrespective of the justice of the enemy making 
the latter reparation, it is now too late. Our bar- 
gain has been struck for better or for worse; it 
remains only to give it a fair construction and 
practical application." 

It is a shameful memory that the British dele- 
gates never withdrew their full demands, to which 
they were still adhering when, in March 1921, the 
question was taken out of their hands by the Su- 
preme Council. The American Delegation cabled 
to the President, who was then at sea, for support 
in maintaining their position, to which he replied 
that the American Delegation should dissent, and 
if necessary dissent publicly, from a procedure 



LEGALITY OF THE CLAIM FOR PENSIONS 159 

which ''is clearly inconsistent with what we de- 
liberately led the enemy to expect and cannot now 
honorably alter simply because we have the 
power. ' ' ^ 

After this the discussions entered on a new 
phase. The British and French Prime Ministers 
abandoned the contentions of their delegates, ad- 
mitted the binding force of the words contained 
in their Note of November 5, 1918, and settled 
down to extract some meaning from these words 
which would compose their differences and satisfy 
their constituents. What constituted "damage 
done to the civilian population"? Could not this 
be made to cover military pensions and the sepa- 
ration allowances which had been made to the 
civilian dependents of soldiers? If so, the bill 
against Germany could be raised to a high enough 
figure to satisfy nearly every one. It was pointed 
out, however, as Mr. Baruch records, "that finan- 
cial loss resulting from the absence of a wage- 
earner did not cause any more 'damage to the 
civilian population' than did an equal financial 
loss involved in the payment of taxes to provide 
military equipment and like war costs." In fact, 
a separation allowance or a pension was simply 
one of many general charges on the Exchequer 
arising out of the costs of the war. If such 
charges were to be admitted as civilian damage, 

* Baruch, op. cit., p. 25. 



160 A KEVISION OF THE TREATY 

it was a very short step back to the claim for the 
entire costs of the war, on the ground that these 
costs must fall on the taxpayer who, generally 
speaking, was a civilian. The sophistry of the 
argument became exposed by pushing it to its log- 
ical conclusion. Nor was it clear how pensions 
and allowances could be covered by words which 
were themselves an interpretation of the phrase, 
'^ restoration of invaded territory." And the 
President's conscience, though very desirous by 
now to be converted (for he had on hand other 
controversies with his colleagues which interested 
him more than this one) remained unconvinced. 

The American delegates have recorded that the 
final argument which overbore the last scruples 
of the President was contained in a Memorandum 
prepared by General Smuts ^ on March 31, 1919. 

' This Memorandum, which has been published in extenso by 
Mr. Baruch {op. cit., p. 29 seq.), belonged to the category of most 
secret documents. It has been given to the world by itself without 
tho accompanying circimistances which, without justifying its 
arguments (on which indeed no further light could bo thrown 
beyond what we already have in the narrative of Mr. Baruch), 
might yet throw light on individual motives. 1 agree with the 
comment made by The Economist (Oct. 22, 1921) in reviewing 
Vol. IV. of the History of the Peace Conference of Paris (pub- 
lished under the auspices of the Institute of International Af- 
fairs), which has reprinted this Memorandum, that "a very seri- 
ous injustice will be done to the reputation of General Smuts if 
this document continues to be repi-oduced and circulated without 
any explanation of the circumstances in which it was prepared." 
Nevertheless it is well that the world should have this document, 
and it must take its place in a story which is more important to 
the world than the motives and reputations of Individual actors 
in it. 



LEGALITY OF THE CLAIM FOR PENSIONS 161 

Briefly, this argument was, that a soldier becomes 
a civilian again after his discharge, and that, 
therefore, a wound, the effects of which persist 
after he has left the Army, is damage done to a 
civilian/ This is the argument by which "dam- 
age done to the civilian population" came to in- 
clude damage done to soldiers. This is the 
argument on which, in the end, our case was based ! 
For at this straw the President's conscience 
clutched, and the matter was settled. 

It had been settled in the privacy of the Four. 
I will give the final scene in the words of Mr. 
Lamont, one of the American delegates : ^ 

*'I well remember the day upon which 
President Wilson determined to support the 
inclusion of pensions in the Separation Bill. 
Some of us were gathered in his library in 

^ The following is the salient passage of the Memorandum: 
"After the soldier's discharge as unfit he rejoins the civilian 
population, and as for the future he cannot (in whole or in part) 
earn his own livelihood, he is suflFering damage as a member of 
the civilian population, for which the German Government are 
again liable to make compensation. In other words, the pension 
for disablement which he draws from the French Government la 
really a liability of the German Government, which they must 
under the above reservation make good to the French Govern- 
ment. It could not be argued that as he was disabled while a 
soldier he does not suffer damage as a civilian after his discharge 
if he is unfit to do his ordinary work. He does literally suffer as 
civiliaji after his discharge, and his pension is intended to make 
good this damage, and is therefore a liability of the German 
Government." 

• What Really Happened at Paris, p. 272, 



162 A REVISION OF THE TREATY 

the Place des Etats Unis, having been sum- 
moned by him to discuss this particular ques- 
tion of pensions. We explained to him that 
we couldn't find a single lawyer in the Amer- 
ican Delegation that would give an opinion in 
favor of including pensions. All the logic 
was against it. 'Logic! logic!' exclaimed the 
President, *I don't care a damn for logic. I 
am going to include pensions ! ' " ^ 

Well! perhaps I was too near these things at 
the time and have become touched in the emo- 
tions, but I cannot "more or less shrug my shoul- 
ders." Whether or not that is the appropriate 
gesture, I have here set forth, for the inspection 
of Englishmen and our Allies, the moral basis on 
which two-thirds of our claims against Germany 
rest. 

' Mr. Lamont adds that "it was not a contempt of logic, but 
simply an impatience of technicality; a determination to brush 
aside verbiage and get at the root of things. There was not one 
of us in the room whose heart did not beat with a like feeling/' 
These words not merely reflect a little naively the modern oppor- 
tunist's impatience of legality and respect for the ^ait accompli, 
but also recall the atmosphere of exhaustion and the longing of 
everyone to be finished, somehow, with this dreadful controversy, 
which for months had outraged at the same time the intellects 
and the consciences of most of the participators. Yet, even so, 
to their lasting credit, the American Delegation had stood firm 
for the law, and it was the President, and he alone, who capitu- 
lated to the lying exigencies of politics. 



CHAPTER VI V 

Reparation, Inter- Ally Debt, and 
International Trade 

It is fashionable at the present time to urge a 
reduction of the Allies' claims on Germany and 
of America's claims on the Allies, on the ground 
that, as such payments can only be made in goods, 
insistence on these claims will be positively in- 
jurious to the claimants. 

That it is in the self-interest of the Allies and 
of America to abate their respective demands, I 
hold to be true. But it is better not to use bad 
arguments, and the suggestion that it is neces- 
sarily injurious to receive goods for nothing is 
not plausible or correct. I seek in this chapter 
to disentangle the true from the false in the now 
popular belief that there is something harmful 
in compelling Germany (or Europe) to "fling 
goods at us." 

The argument is a little intricate and the 
reader must be patient. 

1. It does not make very much difference 
whether the debtor country pays by sending goods 
direct to the creditor or by selling them elsewhere 

163 



164 A REVISION" OP THE TREATY 

and remitting cash. In either case the goods come 
on to the world market and are sold competitively 
or cooperatively in relation to the industries of 
the creditor, as the case may be, this distinction 
depending on the nature of the goods rather than 
on the market in which they are sold. 

2. It is not much use to earmark non-competi- 
tive goods against the payment of the debt, so 
long as competitive goods are being sold by the 
debtor country in some other connection, e.g., to 
pay for its own imports. This is simply to bury 
one's head in the sand. For example, out of the 
aggregate of goods which Germany would natu- 
rally export in the event of her exports being 
forcibly stimulated, it might be possible to pick 
out a selection of non-competitive goods; but it 
would not affect the situation in the slightest de- 
gree to pretend that it was these particular goods, 
and not the others, which were paying the debt. 
It is therefore useless to prescribe that Germany 
shall pay in certain specified commodities if these 
are commodities which she would export in any 
case, and useless, equally, to forbid her to pay in 
certain specified commodities, if that merely 
means that she will export these commodities to 
some other market to pay for her imports gen- 
erally. No expedient on our part for making Ger- 
many pay us, or on America's part for making us 
pay her, in the shape of particular commodities 



REPARATION, INTER-ALLY DEBT, ETC. 165 

affects the position, except in so far as it modifies 
the form of the paying country's exports as a 
whole. 

3. On the other hand, it does us no harm to re- 
ceive for nothing the proceeds of goods, even when 
they are sold competitively, if these goods would 
be sold on the world's market in any case. 

4. If the result of pressing the debtor country 
to pay is to cause it to offer competitive goods 
at a lower price than it would otherwise, the par- 
ticular industries in the creditor country which 
produce these goods are bound to suffer, even 
though there are balancing advantages for the 
creditor country as a whole. 

5. In so far as the payments made by the debtor 
country accrue, not to the country with which the 
debtor's goods are competing, but to a third party, 
clearly there are no balancing advantages to offset 
the direct disadvantages under 4. 

6. The answer to the question, whether the bal- 
ancing advantages to the creditor country as a 
w^hole outweigh the injury to particular industries 
within that country, depends on the length of the 
period over which the creditor country can rea- 
sonably expect to go on receiving the payments. 
At first the injury to the industries which suffer 
from the competition and to those employed in 
them is likely to outweigh the benefit of the pay- 
ments received. But, as in the course of time the 



166 A EEVISION OF THE TREATY 

capital and labor are absorbed in other directions, 
a balance of advantage may accrue. 

The application of these general principles to 
the particular case of ourselves and Germany is 
easy. Germany's exports are so preponderantly 
competitive with ours, that, if her exports are 
forcibly stimulated, it is certain that she will have 
to sell goods against us. This is not altered by 
the fact that it is possible to pick out a few ex- 
ports or potential exports, such as potash or 
sugar, which are not competitive. If Germany is 
to have a large surplus of exports over imports, 
she must increase her competitive sales. In the 
Economic Consequences of the Peace (pp. 175- 
185) I demonstrated this at some length on the 
basis of pre-war statistics. I showed not only 
that the goods she must sell, but the markets she 
must sell them in, were largely competitive with 
our own. The statistics of post-war trade show 
tliat the former argument still holds good. The 
following table shows the proportions in which 
her export trade was divided between the prin- 
cipal articles of export, (1) in 1913, (2) in the 
first nine months of 1920 (the latest period for 
which I have figures in this precise form), and 
(3) in the four months June to September 1921, 
these last figures representing, I think, a not ex- 
actly comparable classification, and being provi- 
sional only: 



REPARATION, INTER-ALLY DEBT, ETC. 167 



German Exports. 



Iron and steel goods 

Machinery (including motor cars) 

Chemicals and dies 

Fuel 

Paper goods 

Electrical goods 

kSilk goods 

Cotton goods 

Woolen goods 

Glass 

Leather goods 

Copper goods 



I'ercentage of Total Exports. 



1913. 



13.2 
7.5 
4 
7 

2.5 
2 
2 

5.5 
6 

.5 
3 
L5 



1920 
(Jan.-Sept.) 



20 
12 
13 

6.5 

4 

3.5 

3 

3 

2.5 
2 

1.5 



1921 
(June-Sept.) 



22 
17 

9.5 

? 

3.5 

? 

15 

2 

4 
? 



It is clear, therefore, that, though raw mate- 
rials other than coal, such as potash, sugar, and 
timber may yield a trifle, Germany can only com- 
pass an export trade of great value by exporting 
iron and steel goods, chemicals, dyes, textiles, and 
coal, for these are the only export articles of 
which she can produce great quantities. It is also 
clear that there have been no very marked 
changes in the proportionate importance of the 
different export trades since the war, except that 
the exchange position has somewhat stimulated, 
relatively to the others, those export lines, such 
as iron goods, machinery, chemicals, dyes, and 
glass, which do not involve much importation of 
raw materials. 

To compel Germany to pay a large indemnity 



168 A REVISION OF THE TREATY 

is therefore the same thing as to compel her to 
expand some or all of the above-mentioned ex- 
ports to a greater extent than she would do other- 
wise. The only way in which she can effect this 
expansion is by offering the goods at a lower price 
than that at which other countries care to offer 
them ; putting herself in a position to offer them 
cheap, partly by the German working classes low- 
ering their standard of life without reducing 
their efficiency in the same degree, and partly by 
German export industries being subsidized, di- 
rectly or indirectly, at the expense of the rest of 
the community. 

These facts, formerly overlooked, are now, per- 
haps, exaggerated by popular opinion. For Prin- 
ciple (3), enunciated above, requires attention. 
Our industries will be subjected to strong compe- 
tition from Germany, just as they were before the 
war, whether we exact Separation or not; and 
we must not ascribe to the Reparation policy in- 
conveniences which would exist in any case. The 
remedy lies not in the now popular nostrums for 
prescribing the form in which Germany shall pay, 
but in reducing the aggregate amount to a reason- 
able figure. For by prescribing the manner in 
which she shall pay us we do not control the form 
of her export trade as a whole ; and by absorbing 
for reparation purposes the whole of a particular 
type of export, we compel her to expand her other 



EEPAKATION, INTER-ALLY DEBT, ETC. 169 

exports to pay for her imports and other inter- 
national obligations. On the other hand, we can 
secure from her moderate payments, on the sort 
of scale, for example, on which she might have 
been building up new foreign investments, with- 
out stimulating her exports as a whole to a greater 
activity than they would enjoy otherwise. This 
is the correct course for Great Britain from the 
standpoint of her own self-interest only. 

The practical application of Principles (5) and 
(6) is also clear. So far as (5) is concerned. 
Great Britain is to receive not the whole of the 
indemnity, but about a fifth of it; whilst (6) pro- 
vides the argument which to me has always ap- 
peared decisive. The permanence of reparation 
payments on a large scale for a long period of 
years is, to say the least, not to be reckoned on. 
Who believes that the Allies will, over a period 
of one or two generations, exert adequate force 
over the German Government, or that the Ger- 
man Government can exert adequate authority 
over its subjects, to extract continuing fruits on 
a vast scale from forced labor? No one believes 
it in his heart; no one at all. There is not the 
faintest possibility of our persisting with this 
affair to the end. But if this is so, then, most 
certainly, it will not be worth our while to dis- 
order our export trades and disturb the equi- 



170 A REVISION OF THE TREATY 

librium of our industry for two or three years; 
much less to endanger the peace of Europe. 

The same principles apply with one modifica- 
tion to the United States and to the exaction by 
her of the debts which the Allied Governments 
owe. The industries of the United States would 
suffer, not so much from the competition of cheap 
goods from the Allies in their endeavors to pay 
their debts, as from the inability of the Allies to 
purchase from America their usual proportion of 
her exports. The Allies would have to find the 
money to pay America, not so much by selling 
more as by buying less. The farmers of the 
United States would suffer more than the manu- 
facturers; if only because increased imports can 
be kept out by a tarifiF, whilst there is no such 
easy way of stimulating diminished exports. It 
is, however, a curious fact that whilst Wall Street 
and the manufacturing East are prepared to con- 
sider a modification of the debts, the Middle West 
and South is reported (I write ignorantly) to be 
dead against it. For two years Germany was 
not required to pay cash to the Allies, and during 
that period the manufacturers of Great Britain 
were quite blind to what the consequences would 
be to themselves when the payments actually 
began. The Allies have not yet been required 
to begin to pay cash to the United States, and the 
farmers of the latter are still as blind as were 



EEPAKATION", INTER-ALLY DEBT, ETC. 171 

the British manufacturers to the injuries they 
will suffer if the Allies ever try seriously to pay 
in full. I recommend Senators and Congressmen 
from the agricultural districts of the United 
States, lest they soon suffer the same moral and 
intellectual ignominy as our own high-Repara- 
tion men, to invest at once in a little caution in 
their opposition to the efforts of Mr. Harding's 
Administration to secure for itself a free hand 
to act wisely in this matter (and even perhaps 
generously) in accordance with the progress of 
opinion and of events. 

The decisive argument, however, for the United 
States, as for Great Britain, is not the damage 
to particular interests (which would diminish with 
time), but the unlikelihood of permanence in the 
exaction of the debts, even if they were paid for 
a short period. I say this, not only because I 
doubt the ability of the European Allies to pay, 
but because of the great difficulty of the problem 
which the United States has before her in any case 
in balancing her commercial account with the Old 
World. 

American economists have examined somewhat 
carefully the statistical measure of the change 
from the pre-war position. According to their 
estimates, America is now owed more interest on 
foreign investments tban is due from her, quite 
apart from the interest on the debts of the Allied 



172 A EEVISIOlSr OF THE TREATY 

Governments; and her mercantile marine now 
earns from foreigners more than she owes them 
for similar services. Her excess of exports of 
commodities over imports approaches $3000 mil- 
lions a year ; ^ whilst, on the other side of the bal- 
ance, payments, mainly to Europe, in respect of 
tourists and of immigrant remittances are esti- 
mated at not above $1000 millions a year. Thus, 
in order to balance the account as it now stands, 
the United States must lend to the rest of the 
world, in one shape or another, not less than 
$2000 millions a year, to which interest and sink- 
ing fund on the European Governmental War 
Debts would, if they were paid, add about $600 
millions. 

Recently, therefore, the United States must 
have been lending to the rest of the world, mainly 
Europe, something like $2000 millions a year. 
Fortunately for Europe, a fair proportion of this 
was by way of speculative purchases of depreci- 
ated paper currencies. From 1919 to 1921 the 
losses of American speculators fed Europe; but 
this source of income can scarcely be reckoned 
on permanently. For a time the policy of loans 
can meet the situation; but, as the interest on 



^ In the year of boom to June 1920, on a total trade of $13,350 
millions, the excess of exports over imports was $2870 millions. 
In the year, partly one of depression, to June 1921, on a total 
trade of $10,150 millions, the excess of exports was $2860 millions. 



EEPARATION", INTEK-ALLY DEBT, ETC. 173 

past loans mounts up, it must in the long run 
aggravate it. 

Mercantile nations have always employed large 
funds in overseas trade. But the practice of for- 
eign investment, as we know it now, is a very 
modern contrivance, a very unstable one, and only 
suited to peculiar circumstances. An old coun- 
try can in this way develop a new one at a time 
when the latter could not possibly do so with its 
own resources alone; the arrangement may be 
mutually advantageous, and out of abundant 
profits the lender may hope to be repaid. But 
the position cannot be reversed. If European 
bonds are issued in America on the analogy of 
the American bonds issued in Europe during the 
nineteenth century, the analogy will be a false 
one; because, taken in the aggregate, there is no 
natural increase, no real sinking fund, out of 
which they can be repaid. The interest will be 
furnished out of new loans, so long as these are 
obtainable, and the financial structure will mount 
always higher, until it is not worth while to main- 
tain any longer the illusion that it has founda- 
tions. The unwillingness of American investors 
to buy European bonds is based on common sense. 

At the end of 1919 I advocated (in The Eco- 
nomic Consequences of the Peace) a reconstruc- 
tion loan from America to Europe, conditioned, 
however, on Europe's putting her own house in 



174 A REVISION OF THE TREATY 

order. In the past two years America, in spite 
of European complaints to the contrary, has, in 
fact, made very large loans, much larger than the 
sum I contemplated, though not mainly in the 
form of regular, dollar-bond issues. No particu- 
lar conditions were attached to these loans, and 
much of the money has been lost. Though wasted 
in part, they have helped Europe through the crit- 
ical days of the post-Armistice period. But a 
continuance of them cannot provide a solution 
for the existing disequilibrium in the balance of 
indebtedness. 

In part the adjustment may be effected by the 
United States taking the place hitherto held by 
England, France, and (on a small scale) Germany 
in providing capital for those new parts of the 
world less developed than herself — the British 
Dominions and South America. The Russian Em- 
pire, too, in Europe and Asia, may be regarded 
as virgin soil, which will at a later date provide 
a suitable outlet for foreign capital. The Amer- 
ican investor will lend more wisely to these coun- 
tries, on the lines on which British and French in- 
vestors used to lend to them, than direct to the 
old countries of Europe. But it is not likely that 
the whole gap can be bridged thus. Ultimately, 
and probably soon, there must be a readjustment 
of the balance of exports and imports. America 
must buy more and sell less. This is the only al- 



KEPARATION", INTER-ALLY DEBT, ETC. 175 

ternative to her making to Europe an annual pres- 
ent. Either American prices must rise faster 
than European (which will be the case if the Fed- 
eral Reserve Board allows the gold influx to pro- 
duce its natural consequences), or, failing this, 
the same result must be brought about by a fur- 
ther depreciation of the European exchanges, 
until Europe, by inability to buy, has reduced her 
purchases to articles of necessity. At first the 
American exporter, unable to scrap all at once 
the processes of production for export, may meet 
the situation by lowering his prices; but when 
these have continued, say for two years, below 
his cost of production, he will be driven inev- 
itably to curtail or abandon his business. 

It is useless for the United States to suppose 
that an equilibrium position can be reached on 
the basis of her exporting at least as much as at 
present, and at the same time restricting her im- 
ports by a tariff. Just as the Allies demand vast 
payments from Germany, and then exercise their 
ingenuity to prevent her paying them, so the 
American Administration devises, with one hand, 
schemes for financing exports, and, with the other, 
tariffs which will make it as difficult as possible 
for such credits to be repaid. Great nations can 
often act with a degree of folly which we should 
not excuse in an individual. 

By the shipment to the United States of all the 



176 A KEVISION OF THE TKEATY 

bullion in the world, and the erection there of a 
sky-scraping golden calf, a short postponement 
may be gained. But a point may even come when 
the United States will refuse gold, yet still de- 
mand to be paid, — a new Midas vainly asking 
more succulent fare than the barren metal of her 
own contract. 

In any case the readjustment will be severe, 
and injurious to important interests. If, in ad- 
dition, the United States exacts payment of the 
Allied debts, the position will be intolerable. If 
she persevered to the bitter end, scrapped her 
export industries and diverted to other uses the 
capital now employed in them, and if her former 
European associates decided to meet their obliga- 
tions at whatever cost to themselves, I do not 
deny that the final result might be to America's 
material interest. But the project is utterly chi- 
merical. It will not happen. Nothing is more 
certain than that America will not pursue such a 
policy to its conclusion; she mil abandon it as 
soon as she experiences its first consequences. 
Nor, if she did, would the Allies pay the money. 
The position is exactly parallel to that of German 
Reparation. America will not carry through to 
a conclusion the collection of Allied debt, any 
more than the Allies will carry through the col- 
lection of their present Reparation demands. 
Neither, in the long run, is serious politics. 



REPARATION", INTER-ALLY DEBT, ETC. 177 

Nearly all well-informed persons admit this in 
private conversation. But we live in a curious 
age when utterances in the press are deliberately 
designed to be in conformity with the worst-in- 
formed, instead of with the best-informed, opin- 
ion, because the former is the wider spread; so 
that for comparatively long periods there can be 
discrepancies, laughable or monstrous, between 
the written and the spoken word. 

If this is so, it is not good business for America 
to embitter her relations with Europe, and to dis- 
order her export industries for two years, in pur- 
suance of a policy which she is certain to abandon 
before it has profited her. 

For the benefit of any reader who enjoys an 
abstract statement, I summarize the argument 
thus. The equilibrium of international trade is 
based on a complicated balance between the agri- 
culture and the industries of the different coun- 
tries of the world, and on a specialization by each 
in the employment of its labor and its capital. If 
one country is required to transfer to another 
without payment great quantities of goods, for 
Vv^hich this equilibrium does not allow, the bal- 
ance is destroyed. Since capital and labor are 
fixed and organized in certain employments and 
cannot flow freely into others, the disturbance of 
the balance is destructive to the utility of the cap- 
ital and labor thus fixed. The organization, on 



178 A REVISION" OP THE TREATY 

which the wealth of the modern world so largely 
depends, suffers injury. In course of time a new 
organization and a new equilibrium can be estab- 
lished. But if the origin of the disturbance is of 
temporary duration, the losses from the injury 
done to organization may outweigh the profit of 
receiving goods without paying for them. More- 
over, since the losses will be concentrated on the 
capital and labor employed in particular indus- 
tries, they will provoke an outcry out of propor- 
tion to the injury inflicted on the community as 
a whole. 



CHAPTER VII 

The Revision of the Treaty and the 
Settlement of Europe 

The deeper and the fouler the bogs into which 
Mr. Lloyd George leads us, the more credit is his 
for getting us out. He leads us in to satisfy our 
desires; he leads us out to save our souls. He 
hands us down the primrose path and puts out 
the bonfire just in time. Who, ever before, en- 
joyed the best of heaven and hell as we do? 

In England, opinion has nearly completed its 
swing, and the Prime Minister is making ready 
to win a General Election on Forbidding Ger- 
many to Pay, Employment for Every one, and a 
Happier Europe for All. Why not, indeed? But 
this Faustus of ours shakes too quickly his 
kaleidoscope of halos and hell-fire, for me to de- 
pict the hues as they melt into one another. I 
shall do better to construct an independent solu- 
tion, which is possible in the sense that nothing 
but a change in the popular will is necessary to 
achieve it, hoping to influence this will a little, 
but leaving it to those, whose business it is, to 
gage the moment at which it will be safe to 
embroider such patterns on a political banner. 

179 



180 A REVISION OF THE TREATY 

If I look back two years and read again what I 
wrote then, I see that perils which were ahead are 
now passed safely. The patience of the common 
people of Europe and the stability of its insti- 
tutions have survived the worst shocks they will 
receive. Two years ago the Treaty, which out- 
raged Justice, Mercy, and Wisdom, represented 
the momentary will of the victorious countries. 
"Would the victims be patient? Or would they be 
driven by despair and privation to shake Society's 
foundations! We have the answer now. They 
have been patient. Nothing very much has hap- 
pened, except pain and injury to individuals. The 
communities of Europe are settling down to a new 
equilibrium. We are almost ready to turn our 
minds from the avoidance of calamity to the re- 
newal of health. 

There have been other influences besides that 
patience of the common people which often before 
has helped Europe through worse evils. The ac- 
tions of those in power have been wiser than their 
words. It is only a slight exaggeration to say 
that no parts of the Peace Treaties have been car- 
ried out, except those relating to frontiers and to 
disarmament. Many of the misfortunes which I 
predicted as attendant on the execution of the 
Reparation Chapter have not occurred, because no 
serious attempt has been made to execute it. And, 
whilst no one can predict with what particular 



THE SETTLEMENT OF EUROPE 181 

sauce the makers of the Treaty will eat their 
words, there can no longer be any question of the 
actual enforcement of this Chapter. And there 
has been a third factor, not quite in accordance 
with expectations, paradoxical at first sight, but 
natural, nevertheless, and concordant with past 
experience, — the fact that it is in times of grow- 
ing profits and not in times of growing distress 
that the working classes stir themselves and 
threaten their masters. "When times are bad and 
poverty presses on them they sink back again into 
a weary acquiescence. Great Britain and all Eu- 
rope have learned this in 1921. Was not the 
French Revolution rather due perhaps to the 
growing wealth of eighteenth-century Prance — 
for at that time France was the richest country 
in the world — than to the pressure of taxation or 
the exactions of the old regime? It is the 
profiteer, not privation, that makes man shake his 
chains. 

In spite, therefore, of trade depression and dis- 
ordered exchanges, Europe, under the surface, is 
much stabler and much healthier than two years 
ago. The disturbance of minds is less. The or- 
ganization, destroyed by war, has been partly re- 
stored; transport, except in Eastern Europe, is 
largely repaired; there has been a good harvest, 
everywhere but in Russia, and raw materials are 
abundant. Great Britain and the United States 



182 A REVISION OF THE TREATY 

and their markets overseas have suffered a cyclical 
fluctuation of trade prosperity of a greater ampli- 
tude than ever before; but there are indications 
that the worst point is passed. 

Two obstacles remain. The Treaty, though un- 
executed, is not revised. And that part of or- 
ganization, which consists in currency regulation, 
public finance, and the foreign exchanges, remains 
nearly as bad as it ever was. In most European 
countries there is still no proper balance between 
the expenditure of the State and its income, so 
that inflation continues and the international val- 
ues of their currencies are fluctuating and un- 
certain. The suggestions which follow are mainly 
directed towards these problems. 

Some contemporary plans for the reconstruc- 
tion of Europe err in being too paternal or too 
complicated; also, sometimes, in being too pes- 
simistic. The patients need neither drugs nor 
surgery, but healthy and natural surroundings in 
which they can exert their own recuperative 
powers. Therefore a good plan must be in the 
main negative; it must consist in getting rid of 
shackles, in simplifying the situation, in cancel- 
ing futile but injurious entanglements. At pres- 
ent every one is faced by obligations which they 
cannot meet. Until the problem set to the Fi- 
nance Ministers of Europe is a possible one, there 



THE SETTLEMENT OF ETJEOPE 183 

can be little incentive to energy or to the exer- 
cise of skill. But if the situation was made such 
that an insolvent country could have only itself 
to blame, then the highest integrity and the most 
accomplished financial technique would, in each 
separate country, have its chance. I seek by the 
proposals of this chapter, not to prescribe a solu- 
tion, but to create a situation in which a solution 
is possible. 

In their main substance, therefore, my sugges- 
tions are not novel. The now familiar project 
of the cancelation, in part or in their entirety, of 
the Eeparation and Inter-allied Debts, is a large 
and unavoidable feature of them. But those who 
are not prepared for these measures must not 
pretend to a serious interest in the Reconstruc- 
tion of Europe. 

In so far as such cancelation or abatement in- 
volves concessions by Great Britain, an English- 
man can write without embarrassment and with 
some knowledge of the tendency of popular opin- 
ion in his own country. But where concessions by 
the United States are concerned he is in more dif- 
ficulty. The attitude of a section of the Amer- 
ican press furnishes an almost irresistible tempta- 
tion to deal out the sort of humbug (or discrete 
half-truths) which are believed to promote cor- 
diality between nations; it is easy and terribly 
respectable ; and what is much worse, it may even 



184 A KEVISION OF THE TREATY 

do good where frankness would do harm. I pur- 
sue the opposite course, with a doubting and un- 
easy conscience, yet supported (not only in this 
chapter but throughout my book) by the hope, 
possibly superstitious, that openness does good 
in the long run, even when it makes trouble at 
first. 

So far, Reparation on a large scale has not been 
collected from Germany. So far, the Allies have 
not paid interest to the United States on what 
they owe. Our present troubles, when they are 
not attributable to the after-effects of war and 
the cyclical depression of trade, are due, therefore, 
not to the enforcement of these claims, but to the 
uncertainties of their possible enforcement. It 
follows, therefore, that merely to put off the prob- 
lem will do us no good. That is what we have 
been doing for two years already. Even to re- 
duce our Reparation demands to Germany's maxi- 
mum actual capacity and really force her to pay 
them, might make matters worse than they are. 
To write down inter-ally debts by half and then 
try to collect them, would be an aggravation, not 
a cure, of the existing difficulties. The solution, 
therefore, must not be one which tries to extract 
the last theoretical penny from everybody; its 
main object must be to set the Finance Ministers 
of every country a problem not incapable of wise 
solution over the next five years. 



THE SETTLEMEN'T OF EUROPE 185 

I. The Revision of the Treaty 

The Reparation Commission have assessed the 
Treaty claims at 138 milliard gold marks, of whicli 
132 milliards are for pensions and damage and 6 
milliards for Belgian debt. They have not stated 
in what proportions the 132 milliards are divided 
between pensions and damages. My own assess- 
ment of the Treaty claims (p. 131 above) is 110 
milliards, of which 74 milliards are for pensions 
and allowances, 30 milliards for damage and 6 
milliards for Belgian debt. 

The arguments of Chapter VI make it incum- 
bent on those who are convinced by them to aban- 
don as dishonorable the claims to pensions and 
allowances. This reduces the claims to 36 mil- 
liards, a sum which it may not be in our interest 
to exact in full, but which is probably within Ger- 
many's theoretical capacity to pay. 

Apart from clearing out of the way various 
clauses which are no longer operative or useful, 
and from terminating the occupation on condi- 
tions set forth below, I should limit my Revision 
of the Treaty to this simple stroke of the pen. 
Let the present assessment of 138 milliard gold 
marks be replaced by 36 milliard gold marks. 

We are strictly entitled under the Armistice 
Terms to these 36 milliards; and if prudence 
recommends an abatement below that figure, such 



186 



A EEVISION" OF THE TREATY 



abatement can properly be made, on terms, by 
those and those only who are entitled to the claims. 
I estimate with some confidence that this sum of 
36 milliards is divisible between the Allies about 
in the proportions shown in the table below. 

The payment by Germany of 5 per cent inter- 
est and 1 per cent sinking fund on this total sum 
is not, in my judgment, theoretically impossible. 
But it could only be done by stimulating her ex- 
port industries in a manner injurious and irritat- 
ing to Great Britain, and by imposing on her 





Damage. 


Belgian Debt. 


Total. 


British Empire 


9 

16 
3 

1 

i 


2 

2 

2 


11 


France 


18 


Belgium 


3 


Italy 


1 


United States 


2 


Others 


1 








30 


6 


36 



Treasury a financial problem of such difficulty 
that it would tend to unsound finance and to weak, 
unstable Governments. Even though this pay- 
ment is theoretically possible, I do not think that 
it is practically obtainable over a period of thirty 
years. 

I recommend, therefore, that, as a separate ar- 
rangement from the Revision of the Treaty as 



THE SETTLEMENT OF EUROPE 187 

above, the British Empire should waive the whole 
of their claims, with the exception of 1 milliard 
gold marks reserved for a special purpose ex- 
plained below, and should undertake to square 
the claims of Italy and the minor claimants by 
cancelation of debt owing from them; thus leav- 
ing Germany to pay 18 milliards to France and 3 
milliards to Belgium (on the assumption that the 
United States also would forego the trifle due to 
her). This sum should be discharged by an an- 
nual payment of 6 per cent of the sum due (being 
5 per cent interest and 1 per cent sinking fund) 
over a period of thirty years. With the assist- 
ance of minor measures to ease the opening pe- 
riod, it is reasonable to suppose that this amount 
could be paid without serious injury to any one. 

In so far as it proves convenient to discharge 
this liability in goods, and not in cash, so much 
the better. But I see no advantage in laying 
stress on this. It would be wiser to leave Ger- 
many to find the money as best she can, any pay- 
ment in goods being by mutual agreement, as in 
the Wiesbaden plan. 

It may lead, however, to great anomalies to fix 
the annual payments in terms of gold over so long 
a period as thirty years. If gold prices fall, the 
burden may become intolerable. If gold prices 
rise, the claimants may be cheated of their ex- 
pectations. The annual payment should be ad- 



188 A EEVISION OF THE TREATY 

justed, therefore, by some impartial authority, 
with reference to an index number of the com- 
modity-value of gold. 

The other Treaty change relates to the Occu- 
pation. It would promote peaceable relations in 
Europe if, as a part of the new settlement, the 
Allied troops were withdrawn altogether from 
German territory, and all rights of invasion for 
whatever purpose waived, except by leave of a 
majority vote of the League of Nations. But in 
return, the British Empire and the United States 
should guarantee to France and Belgium all rea- 
sonable assistance, short of warfare, in securing 
satisfaction for their reduced claims ; whilst Ger- 
many should guarantee the complete de-mili- 
tarization of her territory west of the Rhine. 

II. The Satisfaction of the Allies 

France. — Is it in the interest of France to ac- 
cept this settlement! If it is combined with fur- 
ther concessions from Great Britain and the 
United States by the cancelation of her debts to 
them, it is overwhelmingly in her interest. 

What is her present balance-sheet of claims and 
liabilities? She is entitled to 52 per cent of what 
Germany pays. On p. 75 I have calculated what 
this will be under the London Settlement, (a) on 
the basis of German exports at the rate of 6 mil- 



THE SETTLEMENT OP EUROPE 189 

liards, namely 3.56 milliard gold marks; and (h) 
on the basis of exports at the rate of 10 milliards, 
namely 4.60 milliard gold marks. France's share, 
therefore, is 1.85 milliards per annum on assump- 
tion (a), and 2.39 milliards on assumption (h). 
On the other hand, she owes the United States 
$3634 million and the United Kingdom £557 mil- 
lion. If these sums be converted into gold marks 
at par, and the annual charge on them is cal- 
culated at 5 per cent for interest and 1 per cent 
for sinking fund, her liability is 1.48 milliards 
per annum. That is to say, if Germany pays in 
full and if the more favorable assumption (h) is 
adopted as to the growth of her exports, the most 
for which France can hope under existing arrange- 
ments is a net sum of .91 milliard gold marks 
(£45,500,000 gold) per annum. Whereas under the 
revised scheme she will not only be entitled to a 
greater sum, namely 1.08 milliard gold marks 
(£54,000,000 gold) per annum; but, inasmuch as 
she will be accorded a priority on Germany's avail- 
able resources, and as the total charge is within 
Germany's capacity, she may reasonably expect 
to be paid. 

My proposal provides for the complete restora- 
tion of the devastated provinces at a fair val- 
uation of the actual damage done, and it abandons 
other rival claims which stand in the way of the 
priority of this paramount claim. But apart 



190 A EEVISION" OF THE TREATY 

from this, about which opinions will differ, and 
apart from the increased likelihood which it af- 
fords of really getting payment, France will ac- 
tually receive a larger sum than if the letter of 
the existing agreements is adhered to all round. 

Belgium is entitled at present to 8 per cent of 
the receipts, which under the London Settlement 
would amount to 280 million gold marks per annum 
on assumption (a) and 368 million on assump- 
tion (b). Under the new proposal she will re- 
ceive 180 million gold marks per annum and will 
gain in certainty what she loses in possible re- 
ceipts. The satisfaction of her existing priority 
should be adjusted by mutual agreement between 
herself and France. 

Italy would gain immensely. She is entitled to 
10 per cent of the receipts under the London Set- 
tlement (together with some claims on proble- 
matical receipts from Austria and Bulgaria) ; 
that is to say, 326 million gold marks per annum 
on assumption (a) and 460 million on assumption 
(b). But these sums are far below the annual 
charge of her obligations towards the United 
Kingdom and the United States, which, converted 
into gold marks on the same basis as that em- 
ployed above in the case of France, amounts to 
1000 million gold marks per annum. 



THE SETTLEMENT OP EUROPE 191 

III. The Assistance of New States 

i have reserved above, out of the claims of 
Great Britain, a sum of one milliard gold marks, 
with the object, not that she should retain this 
sum for herself, but that she should use it to ease 
the financial problems of two states for which she 
has a certain responsibility, namely Austria and 
Poland. 

Austria's problems are well known and attract 
a general sympathy. The Viennese were not 
made for tragedy ; the world feels that, and there 
is none so bitter as to wish ill to the city of Mozart. 
Vienna has been the capital of degenerate great- 
ness, but, released from imperial temptations, she 
is now free to fulfil her true role of providing 
for a quarter-part of Europe the capital of com- 
merce and the arts. Somehow she has laughed 
and cried her way through the last two years ; and 
now, I think, though on the surface her plight is 
more desperate than before, a very little help will 
be enough. She has no army, and by virtue of 
the depreciation of her money a trifling internal 
debt. Too much help may make of her a lifelong 
beggar; but a little will raise her from de- 
spondency and render her financial problem no 
longer beyond solution. 

My proposal, then, is to cancel the debts she 
owes to foreign governments, including empty 



192 A REVISION OF THE TREATY 

claims to Reparation, and to give her a compara- 
tively small sum out of the milliard gold marks 
reserved from British claims on Germany. Cred- 
its placed at her disposal in Berlin, equivalent 
in value to 300 million gold marks, to be available, 
as required, over a period of five years, might be 
enough. 

For the other new States, the cancelation of 
debt owing, and, in the case of Hungary, of Repa- 
ration claims, should be enough, except for 
Poland. 

Poland, too, must be given a possible problem, 
but it is not easy to be practical with so imprac- 
ticable a subject. Her main problem can be 
solved only by time, and the recovery of her 
neighbors. I deal here only with the urgent ques- 
tion of making just possible for her a reorgan- 
ization of currency, and of facilitating a peace- 
able intercourse between herself and Germany. 
For this purpose I would assign to her the bal- 
ance of the reserved milliard, namely, 700 million 
gold marks, of which the annual interest should 
be available to her unconditionally, but of which 
the capital should be employed only for a cur- 
rency reorganization, under conditions to be 
approved by the United States and Great Brit- 
ain. 

In its essentials this scheme is very simple. I 
think that it satisfies my criterion of leaving every 



THE SETTLEMENT OF EUROPE 193 

Finance Minister in Europe with a possible prob- 
lem. The rest must come gradually, and I will 
not burden the argument of this book by consid- 
ering along what lines the detailed solutions 
should be sought. 

Who are the losers? Even on paper — far more 
in reality — every continental country gains an ad- 
vantage. But on paper the United States and the 
United Kingdom are losers. What is each of 
them giving up? 

Under the London Settlement Great Britain is 
entitled to 22 per cent of the receipts, which is 
from 780 to 1010 million gold marks per annum 
(£39,000,000 to £50,500,000 gold) according to 
which assumption is adopted as to the volume of 
German exports. She is owed by various Euro- 
pean governments (including Russia, see Appen- 
dix No. IX.) £1,800,000,000, which at 6 per cent 
for interest and sinking fund is £108,000,000 per 
annum. On paper she would forego these sums, 
say £150,000,000 per annum, altogether. In actual 
fact, her prospects of securing more than a frac- 
tion of this amount are remote. Great Britain 
lives by commerce, and most Englishmen now 
need but little persuading that she will gain more 
in honor, prestige, and wealth by employing a 
prudent generosity to preserve the equilibrium 
of commerce and the well-being of Europe, than 
by attempting to exact a hateful and crushing 



194 A EEVISION OF THE TREATY 

tribute, whether from her victorious Allies or her 
defeated enemy. 

The United States would forego on paper a cap- 
ital sum of about 6500 million dollars, which, at 
6 per cent, represents an annual charge of $390,- 
000,000 (£78,000,000 gold). But in my opinion 
the chance of her being actually paid any consid- 
erable amount of this, if she tries to exact it, is 
decidedly remote.^ Is there any likelihood of the 
United States joining in such a scheme soo7i 
enough (for I feel confident she will cancel these 
debts in the end) to be useful! 

Most Americans, with whom I have discussed 
this question, express themselves as personally fa- 
vorable to the cancelation of the European debts, 
but add that so great a majority of their country- 
men think otherwise that such a proposal is at 
present outside practical politics. They think, 
therefore, that it is premature to discuss it; for 
the present, America must pretend she is going 
to demand the money and Europe must pretend 
she is going to pay it. Indeed, the position is 
much the same as that of German Reparation in 

1 This scheme is in no way concernea with the debt of Great 
Britain to the United States, which is excluded from the above 
figures. The question of the right treatment of this debt (which 
differs from the others chiefly because the interest on it is capa- 
ble of being actually collected in cash) raises other issues with 
which I am not dealing here. The above proposals for cancela- 
tion relate solely to the debts owing by the Governments of Con- 
tinental Europe to the Governments of Great Britain and the 
United States. 



THE SETTLEMENT OF EUROPE 195 

England in the middle of 1921. Doubtless my in- 
formants are right about this public opinion, the 
mysterious entity which is the same thing perhaps 
as Rousseau's General Will. Yet, all the same, 
I do not attach, to what they tell me, too much 
importance. Public opinion held that Hans An- 
dersen's Emperor wore a fine suit; and in the 
United States especially, public opinion changes 
sometimes, as it were, en bloc. 

If, indeed, public opinion were an unalterable 
thing, it would be a waste of time to discuss pub- 
lic affairs. And though it may be the chief busi- 
ness of newsmen and politicians to ascertain its 
momentary features, a writer ought to be con- 
cerned, rather, with what public opinion should 
be. I record these platitudes because many 
Americans give their advice, as though it were 
actually immoral to make suggestions which pub- 
lic opinion does not now approve. In America, I 
gather, an act of this kind is considered so reck- 
less, that some improper motive is at once sus- 
pected, and criticism takes the form of an inquiry 
into the culprit's personal character and ante- 
cedents. 

Let us inquire, however, a little more deeply 
into the sentiments and emotions which underlie 
the American attitude to the European debts. 
They want to be generous to Europe, both out of 
good feeling and because many of them now sus- 



196 A REVISION OP THE TEEATT 

pect that any other course would upset their own 
economic equilibrium. But they don't want to 
be "done." They do not want it to be said that 
once again the old cynics in Europe have been 
one too many for them. Times, too, have been 
bad and taxation oppressive; and many parts of 
America do not feel rich enough at the moment to 
favor a light abandonment of a possible asset. 
Moreover, these arrangements, between nations 
warring together, they liken much more closely 
than we do to ordinary business transactions be- 
tween individuals. It is, they say, as though a 
bank having made an unsecured advance to a 
client, in whom they believe, at a difficult time 
when he would have gone under without it, this 
client were then to cry off paying. To permit 
such a thing would be to do an injury to the ele- 
mentary principles of business honor. 

The average American, I fancy, would like to 
see the European nations approaching him with a 
pathetic light in their eyes and the cash in their 
hands, saying, "America, we owe to you our lib- 
erty and our life; here we bring what we can in 
grateful thanks, money not wrung by grievous 
taxation from the widow and orphan, but saved, 
the best fruits of victory, out of the abolition of 
armaments, militarism, Empire, and internal 
strife, made possible by the help you freely gave 
us." And then the average American would re- 



THE SETTLEMENT 0¥ EUROPE 197 

ply: **I honor you for your integrity. It is what 
I expected. But I did not enter the war for profit 
or to invest my money well. I have had my re- 
ward in the words you have just uttered. The 
loans are forgiven. Return to your homes and 
use the resources I release to uplift the poor and 
the unfortunate." And it would be an essential 
part of the little scene that his reply should come 
as a complete and overwhelming surprise. 

Alas for the wickedness of the world! It is not 
in international affairs that we can secure the sen- 
timental satisfactions which we all love. For only 
individuals are good, and all nations are dishonor- 
able, cruel, and designing. In deciding whether 
Italy (for example) must pay what she owes, 
America must consider the consequences of try- 
ing to make her pay, — so far as self-interest is 
concerned, in terms of economic equilibrium be- 
tween America and Italy, and, so far as generos- 
ity is concerned, in terms of Italian peasants and 
their lives. And whilst the various Prime Min- 
isters will telegraph something suitable, drafted 
by their private secretaries, to the etfect that 
America's action makes the moment of writing 
the most important in the history of the world 
and proves that Americans are the noblest crea- 
tures living, America must not expect adequate 
or appropriate thanks. 

Nevertheless, since time presses, we cannot 



198 A REVISION or THE TREATY 

rely on American assistance, and we must do 
without it if necessary. If America does not feel 
ready to participate in a Conference of Revision 
and Reconstruction, Great Britain should be pre- 
pared to do her part in the cancelation of paper 
claims, irrespective of similar action by the United 
States. 

The simplicity of my plan may be emphasized 
by summarizing it. (1) Great Britain, and if 
possible America too, to cancel all the debts owing 
them from the Governments of Europe and to 
waive their claims to any share of German Repa- 
ration; (2) Germany to pay 1260 million gold 
marks (£63,000,000 gold) per annum for 30 
years, and to hold available a lump sum of 1000 
million gold marks for assistance to Poland and 
Austria; (3) this annual payment to be assigned 
in the shares 1080 million gold marks to France 
and 180 million to Belgium. 

This would be a just, sensible, and permanent 
settlement. If France were to refuse it, she 
would indeed be sacrificing the substance to the 
shadow. In spite of superficial appearances to 
the contrary, it is also in the self-interest of Great 
Britain. Perhaps British public opinion, pro- 
foundly altered though it now is, may not yet be 
reconciled to obtaining nothing. But this is a case 
where a wise nation will do best by acting in a 
large way. I have not neglected to consider with 



THE SETTLEMENT OF EUROPE 199 

care the various possible devices by which Great 
Britain might get, or appear to get, something 
for herself from the settlement. She might take, 
for instance, in satisfaction of her claims some of 
the C Bonds under the London Settlement, which, 
having a third priority after provision for the 
A and B Bonds, can be given a nominal value but 
are really worth nothing. She might, in lieu of 
receiving a share of the proceeds of the German 
customs, stipulate that her goods should be ad- 
mitted into Germany free of duty. She might 
seek a partial control over German industries, or 
obtain the services of German organization for the 
future exploitation of Russia. Plans of this sort 
attract an ingenious mind and are not to be dis- 
carded too hastily. Yet I prefer the simple plan, 
and I believe that all these devices are contrary 
to true wisdom. 

There is a disposition in some quarters to insist 
that any concessions to France by Great Britain 
and the United States, affecting Reparation and 
Inter- Ally Debt, should be conditional on Prance 's 
acceptance of a more pacific policy towards the 
rest of the world than that to which she herself 
appears to be inclined. I hope that France will 
abandon her opposition to proposals for reduced 
military and naval establishments. What a 
handicap her youth will suffer if she maintains 
conscription whilst her neighbors, voluntarily or 



200 A KEVISION" OF THE TREATY 

involuniarily, have abandoned it ! Does she real- 
ize the impossibility of friendship between Great 
Britain and any neighboring Power which em- 
barks on a large program of submarines'? I 
hope, too, that France will forget her dangerous 
ambitions in Central Europe and will limit strictly 
those in the Near East; for both are based on 
rubbishy foundations and will bring her no good. 
That she has anything to fear from Germany in 
the future which we can foresee, except what she 
may herself provoke, is a delusion. When Ger- 
many has recovered her strength and pride, as 
in due time she will, many years must pass before 
she again casts her eyes Westward. Germany's 
future now lies to the East, and in that direction 
her hopes and ambitions, when they revive, will 
certainly turn. 

France has an opportunity now of consolidating 
her national position into one of the stablest, saf- 
est, richest on the face of the earth; self-con- 
tained; well- but not over-populated; the heir of 
a peculiar and splendid civilization. Neither 
whining about devastated districts, which are eas- 
ily repaired, nor boasting of military hegemonies, 
which can quickly ruin her, let her lift up her head 
as the leader and mistress of Europe in the peace- 
ful practices of the mind. 

Nevertheless, these objects are not to be gained 
by bargaining and cannot be imposed from with- 



THE SETTLEMENT OF EUROPE 201 

out. Therefore they must not be dragged into 
the Reparation Settlement. This Settlement 
must be offered France on one condition only, — 
that she accepts it. But if, like Shylock, she 
claims her pound of flesh, then let the Law pre- 
vail. Let her have her bond, and let us have our 
bonds too. Let her get what she can from Ger- 
many and pay what she owes to the United States 
and England. 

The chief question for dispute is, perhaps, 
whether an annual payment by Germany of £63,- 
000,000 (gold) is enough. I admit that the pay- 
ment of a somewhat larger sum may prove to be 
within her capacity. But I recommend this fig- 
ure because on the one hand it is sufficient to re- 
store the destruction done in France, yet on the 
other is not so crushing that, to make Germany 
pay it, we need be in a position to invade her 
every spring and autumn. We must fix the pay- 
ment at an amount which Germany herself will 
recognize as not unjust, and which is sufficiently 
within her maximum capacity to leave her some 
incentive to work and pay it off. 

Suppose that we knew the theoretical maximum 
of Germany's capacity to produce and sell abroad 
a surplus of goods, or could hit on some sliding 
scale which would automatically absorb year by 
year whatever surplus there was; should we be 
wise to demand it? The project of extracting at 



202 A REVISION OF THE TREATY 

the point of the bayonet — for that is what it would 
mean — a payment so heavy that it would never be 
paid voluntarily, and to go on doing this until all 
the makers of the Peace Treaty of Versailles 
have been long dead and buried in their local 
Valhallas, is neither good nor sensible. 

My own proposals, moderate though they may 
seem in comparison with others, throw on Ger- 
many a very great burden. They procure for 
France an enormous benefit. Frenchmen, having 
fed to satiety on imaginary figures, are nearly 
ready, I think, to find a surprising flavor and 
piquancy in real ones. Let them consider what 
a tremendous financial strength my scheme would 
give them. Freed from external debt, they would 
receive in real values each year for thirty years 
a payment equivalent in gold to nearly half the 
gold reserv^e now held by the Bank of France; 
and at the end of the set period Germany would 
have paid back ten times what she took after 1870. 

Is it for Englishmen to complain! Are they 
really losers? One cannot cast up a balance-sheet 
between incommensurables. But peace and amity 
might be won for Europe. And England is only 
asked (as 1 fancy she knows pretty well, by now, 
in her bones) to give up something which she will 
never get anyhow. The alternative is that we and 
the United States will be jockeyed out of our 
claims amidst a general international disgust. 



APPENDIX OF DOCUMENTS 

I. The Spa Agreement, July 1920 

{A) Summary ^ of the Agreement upon Reparations be- 
tween tlie Allies, signed hy tlie British Empire, 
France, Italy, Japan, Belgium, and Portugal. 

Article 1 provides that in pursuance of the Treaty o-f 
Versailles the sums received from Germany for repara- 
tions shall be divided in the following proportions: 

France 62 per cent. 

British Empire 22 " 

Italy 10 

Belgium 8 " 

Japan and Portugal % of 1 per cent each. 

The remaining 6^/^ per cent is reserved for the Serbo- 
Croat-Slovene State and for Greece, Rumania, and other 
Powers not signatories of the Agreement. 

Article 2 provides that the aggregate amount re- 
ceived for reparation from Austria-Hungary and Bul- 
garia, together with amounts that may be received in 
respect of the liberation of territories belonging to the 
former Austro-Hungarian Monarchy, shall be divided : 
(a) As to half in the proportions mentioned in Arti- 
cle 1. 
(&) As to the other half, Italy shall receive 40 per 
cent, while 60 per cent is reserved for Greece, 
Rumania, and the Serbo-Croat-Slovene State 
and other Powers entitled to reparations but 
not signatories of the Agreement. 
Article 3 provides that the Allied Governments shall 

* The following is the official summary issued at the time. The 
complete text of the Agreement has not been published. 

203 



204 A REVISION OF THE TREATY 

adopt measures to facilitate if necessary the issue by 
Germany of loans destined for the internal requirements 
of that country and to the prompt discharge of the Ger- 
man debt to the Allies. 

Article 4 deals in detail with the keeping of accounts 
by the Reparation Commission. 

Article 5 secures to Belgium her priority of £100,- 
000,000 gold and enumerates the securities affected by 
such priority.^ 

Article 6 deals with the valuation of ships sur- 
rendered under the various Peace Treaties, and provides 
for the allocation of sums received for the hire of such 
ships. It deals also with questions outstanding as to 
the decisions taken by the Belgian Prize Courts. Bel- 
gium receives compensation out of the shares of other 
Allied Powers. 

Article 7 refers to the Allied cruisers, floating docks, 
and material handed over under the Protocol of January 
10, 1920, as compensation for the German warships 
which were sunk. 

Article 8 declares that the same Protocol shall apply 
to the proceeds of the sale of ships and war material 
surrendered under the naval clauses of the Treaty, vir- 
tually including the proceeds of naval war material sold 
by the Reparation Commission. 

Article 9 gives Italy an absolutely prior claim to cer- 
tain specified sums as a set-off to amounts due to her by 
Austria-Hungary and Bulgaria. 

Article 10 reserves the rights of Poland and declares 

that this Agreement shall not apply to her. 

' Of which the most tangible were 400,000,000 Danish kroner 
payable in respect of Sleswig, certain sums were from Luxem- 
burg for coal, any balance available in respect of German ships 
seized as prizes in Brazilian ports, and any balance available 
towards reparation out of German assets in the United States. 



APPENDIX OF DOCUMENTS 205 

Article 11 maintains the rights of countries who lent 
money to Belgium before November 11, 1918, and makes 
provision for repayment immediately after satisfaction 
of the Belgian claim to priority in respect of £100,- 
000,000. 

Article 12 maintains the rights of the Allied Powers 
to the repayment of credits granted to ex-enemy Powers 
for the purposes of relief. 

Article 13 reserves the question of fixing the cost of 
the armies of occupation in Germany on a uniform basis 
for discussion with the United States of America. 

(B) The Allied Note to Germany on the Subject of Coal 
Deliveries 

1. The German Government undertakes to place at 
the disposal of the Allies, from August 1, 1920, for the 
ensuing six months, 2,000,000 tons of coal per month, 
this figure having been approved by the Reparation Com- 
mission. 

2. The Allied Governments will credit the Repara- 
tion accounts with the value of this coal, as far as it is 
delivered by rail or inland navigation, and it will be 
valued at the German internal price in accordance with 
Paragraph 6 (A), Annex V., Part VIIL, of the Treaty 
of Versailles. In addition, in consideration of the ad- 
mission of the right of the Allies to have coal of specified 
kind and quality delivered to tliem, a premium of five 
gold marks, payable in cash by the party taking delivery, 
shall be applied to the acquisition of foodstuffs for the 
German miners. 

3. During the period of the coal deliveries provided 
for above, the stipulations of Paragraphs 2, 3, and 4 of 
the draft Control Protocol of July 11, 1920, shall be 



206 A REVISION OP THE TREATY 

put in force at once in the modified form of the Annex 
hereto. (See below.) 

4. An agreement shall be made forthwith between the 
Allies for distribution of the Upper Silesian coal output 
by a Commission on which Germany will be represented. 
This agreement shall be submitted for the approval of 
the Reparation Commission. 

5. The Commission, on which the Germans shall be 
represented, shall meet forthwith at Essen, Its purpoae 
sJiall be to seek means by which the conditions of life 
among the miners with regard to food and clothing can 
be improved, with a view to the better working of the 
mines. 

6. The Allied Governments declare their readiness 
to make advances to Germany equal in amount to the 
difference between the price paid under Paragraph 2 
above, and the export price of German coal, f.o.b. in 
German ports, or the English export price, f.o.b. in 
English ports, whichever may be the lowest, as laid down 
in Paragraph VI. (B) of Annex V., Part VIII., of the 
Treaty of Versailles. These advances shall be made in 
accordance with Articles 235 and 251 of the Treaty of 
Versailles. They shall enjoy an absolute priority over 
all other Allied claims on Germany. The advances shall 
be made at the end of each month, in accordance with 
the number of tons delivered and the average f.o.b. price 
of coal during the period. Advances on account shall 
be made by the Allies at the end of the first month, 
without waiting for exact figures. 

7. If by November 15, 1920, it is ascertained that the 
total deliveries for August, September, and October 1920 
have not reached 6,000,000 tons, the Allies will proceed 
to the occupation of a further portion of German terri- 
tory, either the region of the Ruhr or some other. 



APPENDIX OF DOCUMENTS 207 

Annex 

1. A permanent delegation of the Reparation Com- 
mission will be set up at Berlin, whose mission will be 
to satisfy itself by the following means that the deliv- 
eries of coal to the Allies provided for under the Agree- 
ment of July 15, 1920, shall be carried out: The pro- 
grammes for the general distribution of output, with 
details of origin and kind, on the one hand, and the 
orders given to ensure deliveries to the Allied Powers 
on the other hand, shall be drawn up by the responsible 
German authorities and submitted by them for the ap- 
proval of the said delegation a reasonable time before 
their despatch to the executive bodies responsible for 
their execution, 

2. No modification in the said progi'amme which may 
involve a reduction in the amount of the deliveries to 
the Allies shall be put into effect without prior approval 
of the Delegation of the Reparation Commission in 
Berlin. 

3. The Reparation Commission, to which the German 
Government must periodically report the execution by 
the competent bodies of the orders for deliveries to the 
Allies, will notify to the interested Powers any infrac- 
tion of the principles adopted herein. 

II. The Paris Decisions,^ January 29, 1921 

1. In satisfaction of the obligations laid on her by 
Articles 231 and 232 of the Treaty of Versailles, Ger- 
many shall pay, apart from the restitutions which she 
must effect in conformity with Article 238 and all obli- 
gations under the Treaty: 

* So far as I am aware, no complete official text of these de- 
cisions has been published in English. The above is translated 
from the French text. 



208 !^ EEVISION OF THE TREATY 

(1) Fixed annuities, payable in equal instalments at 
the end of each six months, as follows : 

milliard gold marks 
(a) Two annuities of 2 (May 1, 1921-May 1, 1923) 

(6) Three " 3 (May 1, 1923-May 1, 1926) 

(c) Tliree " 4 (May 1, 1926-May 1, 1929) 

(d) Three " 5 (May 1 1929-May 1, 1932) 

(e) Thirty-one " 6 (May 1, 1932-May 1, 1963) 

(2) Forty-two annuities, reckoning from May 1, 1921, 
equivalent to 12 per cent of the value of Germany's 
exports, levied on the receipts from them and payable 
in gold two months after the conclusion of each six- 
monthly period. 

To ensure that (2) above shall be completely carried 
out, Germany will accord to the Reparation Commission 
every facility for verifying the amount of the exports 
and for establishing the necessary supervision. 

2. The German Government shall deliver forthwith 
to the Reparation Commission Bearer Bonds payable at 
the due dates laid down in Article 1 (1) of the present 
scheme, and of an amount equal to each of the six- 
monthly instalments payable thereunder. Instructions 
will be given with the object of facilitating, on the part 
of such Powers as may require it, the mobilisation of 
the portion accruing to them under the Agreements 
which they have established amongst themselves. 

3. Germany shall be entitled at any time to antici- 
pate the fixed portion of her obligation. 

Payments made by her in anticipation shall be applied 
in reduction of the fixed annuities prescribed in Article 
1 (1), discounted at a rate of 8 per cent up to May 1, 
1923, 6 per cent from May 1, 1923, to May 1, 1925, and 
5 per cent after May 1, 1925. 

4. Germany shall not embark on any credit operation 



APPENDIX OP DOCUMENTS 209 

abroad, directly or indirectly, without the approval of 
the Reparation Commission. Tliis restriction applies to 
the Government of the German Empire, the Government 
of the German States, German provincial and municipal 
authorities, and also to companies and enterprises con- 
trolled by these Governments and authorities. 

5. In pursuance of Article 248 of the Treaty of Ver- 
sailles all the assets and revenues of the German Em- 
pire and its constituent States are held in guarantee of 
the complete execution by Germany of the provisions of 
this scheme. 

The receipts of the German Customs, by land and 
sea, in particular the receipts of all import and export 
duties and all supplementary taxes, constitute a special 
pledge for the execution of the present Agreement. 

No modification shall be introduced, liable to dimin- 
ish the yield of the Customs, without the Reparation 
Commission approving the Customs Legislation and 
Regulations of Germany. 

The whole of the receipts of the German Customs shall 
be credited to the account of the German Government, 
by a Receiver-General of the German Customs, nomi- 
nated by the German Government with the assent of 
the Reparation Commission. 

In the event of Germany failing to meet one of the 
payments laid down in the present scheme: 

(1) The whole or part of the receipts of the German 
Customs shall be taken over from the Receiver-General 
of the German Customs by the Reparation Commission 
and applied by it to the obligations in which Germany 
has defaulted. In this event the Reparation Commis- 
sions shall, if it deems necessary, itself a.ssume the ad- 
ministration and collection of the Customs receipts. 

(2) The Reparation Commission shall be entitled, in 



210 A REVISION OF THE TEEATY 

addition, to require the German Government to impose 
such higher tariffs or to take such other measures to 
increase its resources as it may deem indispensable. 

(3) If this injunction is without effect, the Commis- 
sion shall be entitled to declare the German Government 
in default and to notify this state of affairs to the Gov- 
ernments of the Allied and Associated Powers who shall 
take such measures as they think justified. 

(Signed) Henri Jaspar, 

D. Lloyd George. 

Aristide Briand. 

C. Sforza. 

K. ISHII. 
Pabis, January 29, 1921. 

III. Claims Submitted to the Reparation Commis- 
sion BY the Various Allied Nations, as Pub- 
lished BY the Commission,^ February 23, 1921 

France 

I. — Damage to Property (Reconstitution Values) 

Frs. (Paper) 

Industrial damages 38,882,521,479 

Damage to buildings (propriHd bdtie) 36,892,500,000 

Damage to furniture and fittings (dommages mo- 

biliers) 25,119,500,000 

Damage to land (propri4t6 non batie) 21,671,546,225 

Damage to State property 1,958.217,193 

Damage to public works 2,583,299,425 

Other damages 2,359,865,000 

Shipping losses 5,009.618,722 

Damages suffered in Algeria and colonies 10,710,000 

Do. abroad 2,094,825,000 

Interest at 5 per cent on the principal (33,000,- 
000,000 francs, in round figures, between No- 
vember 11, 1918, and May 1, 1921, or 30 
months) , say, in round figures 4,125,000,000 

^ The Commission published at the same time a warning that it 
had not adopted these claims, but was about to examine them. 



Appendix of documents 211 

II. — Injuries to Persons 

Frs. (Paper) 

Military pensions 60,045,696,000 

Allowances to families ot mobilised men 12,936,956,824 

Pensions accorded to civilian victims of the war 

and theii dependants 514,465,000 

Ill-treatment inflicted on civilians and prisoners of 

war 1,869,230,000 

Assistance given to prisoners of war 976,906,000 

Insufficiency of salaries and wages 223,123,313 

Exactions by Germany to the detriment of the 

civilian population 1,267,615,939 



Total of the French claims 218,541,596,120 



Great Britain 

£ Frs. 

Damage to property 7,936,456 

Shipping losses 763,000,000 

Losses abroad 24,940,559 

Damage to river and canal 

shipping 4,000,000 

Military pensions 1,706,800,000 

Allowances to families of mo- 
bilised men 7,597,832,086 

Pensions for civilian victims. . 35,915,579 

Ill-treatment inflicted on 

civilians and prisoners. . . 95,746 

Assistance to prisoners of war 12,663 

Insufficiency of salaries and 

wages 6,372 



£2,542,070,375 Frs. 7,597,832,086 

Italy 

Damage to property Lire 20,933,547,500 

Shipping losses £128,000,000 

Military pensions , Francs 31,041,000,000 

Allowances to families of mobilised men. . . Francs 6,885,130,395 
Civilian victims of the war and prisoners. . Lire 12,153,289,000 

Total Lire 33,086,836,000 

" Francs 37,926,130,395 

" £128,000,000 



212 A REVISION OF THE TEEATY 

Belgium 
Damage to property (present value) .Belgian Frcs. 29,773,939,099 

Shipping losses (present value) Belgian Frcs. 180,708,250 

Military pensions French Frcs. 1,637,285,512 

Allowances to families of mobilised 

men French Frcs. 737,930,484 

Civilian victims and prisoners of war Belgian Frcs. 4,295,998,454 

Total Belgian Frcs. 34,254,645,893 

" French Frcs. 2,375,215,996 

The other claims may be summarised as follows : 

Japan .... 297,593,000 yen ( shipping losses ) . 

" .... 454,063,000 yen (allowances to families of mobil- 

ised men). 

832,774,000 yen. 
Jugo-Slavia 8,496,091,000 dinars (damage to property). 

" 19,219,700,112 francs (injuries to persons) . 

Rumania.. 9,734,015,287 gold francs (property losses). 
" 9,296,663,076 gold francs (military pensions). 

" 11,652,009,978 gold francs (civilians and prisoners of 

war). 



31,099,400,188 gold francs. 
Portugal.. 1,944,261 contos ( 1,574,907 contos for property loss). 
Greece , . . 4,992,788,739 gold francs ( 1,883,181,542 francs for 
property loss ) . 

Brazil £1,216,714 (shipping £1,189,144), plus 598,405 francs. 

Czecho- 
slovakia 6,944,228,296 franca and 5,614,947,990 kroner (war- 
losses). 
618,204,007 francs and 1,448,169,845 kroner (Bolshe- 
vist invasion ) . 

7,612,432,103 francs and 7,063,117,135 kroner, 

Siam 9,179,208 marks, gold, plus 1,169,821 francs. 

Bolivia . .. £16,000. 

Peru £56,236, plus 107,389 francs. 

Haiti $80,000, plus 532,593 francs. 

Cuba $801,135. 

Liberia . . . $3,977,135. 

Poland ... 21,91 3,269,740 francs gold, plus 500,000,000 marks gold. 

European ^ 

Danube W 1,834,800 francs gold, 15,048 francs French, and 

CommissionJ 488,051 lei. 



APPENDIX OF DOCUMENTS 213 

IV. The First Ultimatum of London, March 3, 1921 

The following declaration was delivered to Dr. Simons 
by Mr. Lloyd George, speaking on behalf of the British 
and Allied Governments, by word of mouth: 

"The Allies have been conferring upon the whole 
position and I am now authorised to make this declara- 
tion on their behalf : 

"The Treaty of Versailles was signed less than two 
years ago. The German Government have already de- 
faulted in respect of some of its most important pro- 
visions : the delivery for trial of the criminals, who have 
offended against the laws of war, disarmament, the pay- 
ment in cash or in kind of 20,000,000,000 of gold marks 
(£1,000,000,000). These are some of the provisions. 
The Allies have displayed no harsh insistence upon the 
letter of their bond. They have extended time, they 
have even modified the character of their demands; but 
each time the German Government failed them. 

"In spite of the Treaty and of the honourable under- 
taking given at Spa, tlie criminals have not yet been 
tried, let alone punished, although the evidence has been 
in the hands of the German Government for months. 
Military organisations, some of them open, some clan- 
destine, have been allowed to spring up all over the coun- 
try, equipped with arms that ought to have been sur- 
rendered. If the German Government had shown in 
respect of reparations a sincere desire to help the Allies 
to repair the terrible losses inflicted upon them by the 
act of aggression of which the German Imperialist Gov- 
ernment was guilty, we should still have been ready as 
before to make all allowances for the legitimate difficul- 
ties of Germany. But the proposals put forward have 
reluctantly convinced the Allies either that the German 



214 A EEVISION^ OF THE TREATY 

Government does not intend to carry out its Treaty 
obligations, or that it has not the strength to insist, in 
the face of selfish and short-sighted opposition, upon the 
necessary sacrifices being made. 

"If that is due to the fact that German opinion will 
not permit it, that makes the situation still more seri- 
ous, and renders it all the more necessary that the 
Allies should bring the leaders of public opinion once 
more face to face with facts. The first essential fact 
for them to realise is this — that the Allies, whilst pre- 
pared to listen to every reasonable plea arising out of 
Germany's difficulties, cannot allow any further palter- 
ing with the Treaty. 

The Ultimatum 

"We have therefore decided — having regard to the 
infractions already committed, to the determination in- 
dicated in these proposals that Germany means still 
further to defy and explain away the Treaty, and to the 
challenge issued not merely in these proposals but in 
official statements made in Germany by the German 
Government — that we must act upon the assumption that 
the German Government are not merely in default, but 
deliberately in default ; and unless we hear by Monday 
that Germany is either prepared to accept the Paris 
decisions or to submit proposals which will in other 
ways be an equally satisfactory discharge of her obliga- 
tions under the Treaty of Versailles (subject to the 
concessions made in the Paris proposals), we shall, as 
from that date, take the following course under tlie 
Treaty of Versailles. 

"The Allies are agreed: 

(1) To occupy the towns of Duisburg, Ruhrort, and 
Diisseldorf, on the right bank of the Rhine. 



APPENDIX or DOCUMENTS 215 

(2) To obtain powers from their respective Parlia- 

ments requiring their nationals to pay a cer- 
tain proportion of all payments due to Ger- 
many on German goods to their several Govern- 
ments, such proportion to be retained on ac- 
count of reparations. (This is in respect of 
goods purdiased either in this eoimtry or in 
any other Allied country from Germany.) 

(3) (a) The amount of the duties collected by the 

German Customs houses on the external fron- 
tiers of the occupied territories to be paid to 
the Reparation Commission. 

(&) These duties to continue to be levied in 
accordance with the German tariff. 

(c) A line of Customs houses to be tem- 
porarily established on the Rhine and at the 
boundary of the tetes des ponts occupied by 
the Allied troops ; the tariff to be levied on this 
line, botli on tbe entry and export of goods, to 
be determined by the Allied High Commission 
of the Rhine territory in conformity with the 
instructions of tlie Allied Governmeaits. ' ' 

V. The German Counter-proposaij, as Transmitted 
TO THE United States Government, April 24, 
1921 

The United States Government have, by their Note of 
April 22, opened the possibility, in a way which is thank- 
fully acknowledged, of solving the reparations problem 
once more by negotiations ere a solution is effected by 
coercive measures. The German Government appreci- 
ates this step in its full importance. They have in the 
following proposals endeavoured to offer that which ac- 



216 A REVISION OF THE TEEATY 

cording to their convictions represents the utmost limit 
which Germany 's economic resources can bear, even with 
the most favourable developments : 

1. Germany expresses her readiness to acknowledge 
for reparation purposes a total liability of 50 milliard 
gold marks (present value). Germany is also prepared 
to pay the equivalent of this sum in annuities, adapted 
to her economic capacity up to an aggregate of 200 mil- 
liard gold marks. Germany proposes to mobilise her 
liability in the following way: 

2. Germany to raise at once an international loan, of 
which amount, rate of interest, and amortisation quota 
are to be agreed on. Germany will participate in this 
loan, and its terms, in order to secure the greatest possi- 
ble success, will contain special concessions, and gen- 
erally be made as favourable as possible. Proceeds of 
this loan to be placed at the disposal of the Allies. 

3. On the amount of her liability not covered by the 
international loan Germany is prepared to pay interest 
and amortisation quota in accordance with her economic 
capacity. In present circumstances she considers the 
rate of 4 per cent the highest possible. 

4. Germany is prepared to let the Powers concerned 
have the benefit of improvements in her economic and 
financial situation. For this purpose the amortisation 
quota should be made variable. In case an improve- 
ment should take place, the quota would rise, whilst it 
would correspondingly fall if developments should be 
in the other direction. To regulate such variations an 
index scheme would have to be prepared. 

5. To accelerate the redemption of the balance, Ger- 
many is ready to assist with all her resources in the 
reconstruction of the devastated territories. She con- 
siders reconstruction the most pressing part of repara- 



APPENDIX OF DOCUMENTS 217 

tion, because it is the most effective way to combat the 
hatred and misery caused by the war. She is prepared 
to undertake, herself, the rebuilding of townships, vil- 
lages, and hamlets, or to assist in the reconstruction with 
labour, material, and her other resources, in any way 
the Allies may desire. The cost of such labour and ma- 
terial she would pay herself. (Full details about this 
matter have been communicated to the Reparation Com- 
mission.) 

6. Apart from any reconstruction work Germany is 
prepared to supply for the same purpose, to States con- 
cerned, any other materials, and to render them any 
other services as far as possible on a purely commercial 
basis. 

7. To prove the sincerity of her intention to make 
reparation at once, and in an unmistakable way, Ger- 
many is prepared to place immediately at the disposal 
of the Reparation Commission the amount of one mil- 
liard gold marks in the following manner: First, 150,- 
000,000 gold marks in gold, silver, and foreign bills; 
secondly, 850,000,000 gold marks in Treasury bills, to be 
redeemed within a period not exceeding three months 
by foreign bills and other foreign values. 

8. Germany is further prepared, if the United States 
and the Allies should so desire, to assume part of the 
indebtedness of the Allies to the United States as far as 
her economic capacity will allow her. 

9. In respect of the method by which the German 
expenditures for reparation purposes should be cred- 
ited against her total liability, Germany proposes that 
prices and values should be fixed by a commission of 
experts. 

10. Germany is prepared to secure subscribers for the 
loan hi every possible way by assigning to them public 



218 A EEVISION" OF THE TEEATY 

properties or public income in a way to be arranged for. 

11. By the acceptance of these proposals all other 
German liabilities on reparation account are cancelled, 
and German private property abroad released. 

12. Germany considers that her propasals can only be 
realised if the system of sanctions is done away with 
at once; if the present basis of German production is 
not further diminished; and if the German nation is 
again admitted to the world's commerce and freed of 
all unproductive expenditure. 

These proposals testify to the German firm will to 
make good damage caused by the war up to the limit of 
her economic capacity. The amounts offered, as well as 
mode of payment, depend on this capacity. As far as 
differences of opinion as to this capacity exist, the Ger- 
man Government recommend that they be examined by 
a commission of recognised experts acceptable to all the 
interested Governments. She declares herself ready in 
advance to accept as binding any decision come to by it. 
Should the United States Government consider negotia- 
tions could be facilitated by giving the proposals an- 
other form, the German Government would be thankful 
if their attention were drawn to points in which the 
United States Government consider an alteration desira- 
ble. The German Government would also readily re- 
ceive any other proposals the United States Government 
might feel inclined to make. 

The German Government is too firmly convinced that 
the peace and welfare of the world depend on a prompt, 
just, and fair solution of the reparation problem not to 
do everything in their power to put the United States 
in a position which enables them to bring the matter to 
the attention of the Allied Gt)vernmeiit5k — BerliUf April 
24, 1921. 



APPENDIX OF DOCUMENTS 219 

VI. The Assessment Announced by the Reparation 
Commission, April 30, 1921 

The Reparation Commission, in discharge of the pro- 
visions of Article 233 of tlie Treaty of Versailles, has 
reached a unanimous decision to fix at 132 milliard gold 
marks the total of the damages for which reparation is 
due by Germany under Article 232 (2) and Part VIII., 
Annex I. of tlie said Treaty. 

In fixing tliis figure the Commission have made the 
necessary deductions from the total of damages to cover 
restitutions effected or to be effected in discharge of 
Article 238, so that no credit will be due to Germany 
from the fact of these restitutions. 

The Commission have not included in the above figure 
the sum corresponding to the obligation, which falls on 
Germany as an addition in virtue of Article 232.(3), 
"to make reimbursement of all sums which Belgium has 
borrowed from the Allied and Associated Governments 
up to November 11, 1918, together with interest at the 
rate of 5 per cent per annum on such sums." 

VII. The Second Ultimatum of London, May 5, 1921 

The Allied Powers, taking note of the fact that, in 
spite of the successive concessions made by the Allies 
since the signature of the Treaty of Versailles, and in 
spite of the warnings and sanctions agreed upon at Spa 
and at Paris, as well as of the sanctions announced in 
London and since applied, the German Government is 
still in default in the fulfilment of the obligations in- 
cumbent upon it under the terms of the Treaty of Ver- 
sailles as regards (1) disarmament; (2) the payment 
due on May 1, 1921, under Article 235 of the Treaty, 



220 A REVISION" OF THE TREATY 

which the Eeparation Commission has already called 
upon it to make at this date; (3) the trial of the war 
criminals as further provided for by the Allied Notes 
of February 13 and May 7, 1920; and (4) certain other 
important respects, notably those which arise under 
Articles 264 to 267, 269, 273, 321, 322, and 327 of the 
Treaty, decide: — 

(a) To proceed forthwith with such preliminary 
measures as may be required for the occupa- 
tion of the Ruhr Valley by the Allied Forces on 
the Rhine in the contingency provided for in 
Paragraph {d) of this Note. 

(&) In accordance with Article 233 of the Treaty to 
invite the Reparation Commission to prescribe 
to the German Government without delay the 
time and manner for securing and discharging 
the entire obligation incumbent upon that Gov- 
ernment, and to announce their decision on 
this point to the German Government at latest 
on May 6. 

(c) To call upon the German Government categori- 
cally to declare within a period of six days from 
the receipt of the above decision its resolve (1) 
to carry out without reserve or condition their 
obligations as defined by the Reparation Com- 
mission; (2) to accept without reserve or con- 
dition the guarantees in respect of those obliga- 
tions prescribed by the Reparation Commis- 
sion; (3) to carry out without reserve or delay 
the measures of military, naval, and aerial dis- 
armament notified to the German Government 
by the Allied Powers in their Note of January 
29, 1921, those overdue being completed at once, 



APPENDIX OF DOCUMENTS 221 

and the remainder by the prescribed dates; 
(4) to carry out without reserve or delay the 
trial of the war criminals and the other unful- 
filled portions of the Treaty referred to in the 
first paragraph of this Note. 
(d) Failing fulfilment by the German Government of 
the above conditions by May 12, to proceed to 
the occupation of the Valley of the Ruhr and 
to take all other military and naval measures 
that may be required. Such occupation will 
continue so long as Germany fails to comply 
with the conditions summarised in Paragraph 
(c). 

(Signed) Henri Jaspab, 

A. Briand 

D. Lloyd George. 

C. Sforza. 

Hayashi. 

Schedule of Payments Prescribing the Time and Manner 
for Securing and Discharging the Entire Ohliga- 
tion of Germany for Beparation under Articles 231, 
232, and 233 of the Treaty of Versailles. 

The Reparation Commission has, in accordance with 
Article 233 of the Treaty of Versailles, fixed the time 
and manner for securing and discharging the entire 
obligation of Germany for Reparation under Articles 
231, 232, and 233 of the Treaty as follows:— 

This determination is without prejudice to the duty 
of Germany to make restitution under Article 238, or to 
other obligations under the Treaty. 

1. Germany will perform in the manner laid down in 
this Schedule her obligations to pay the total fixed in 
accordance with Articles 231, 232, and 233 of the Treaty 



222 A EEVISION OF THE TREATY 

of Versailles by the Commission — viz. 132 milliards of 
gold marks (£6,600,000,000) less (a) the amount already- 
paid on account of Eeparation; (&) sums which may 
from time to time be credited to Germany in respect of 
State properties in ceded territory, etc.; and (c) any 
sums received from other enemy or ex-enemy Powers in 
respect of which the Commission may decide that credits 
should be given to Germany, plus the amount of tlie Bel- 
gian debt to the Allies, the amounts of these deductions 
and additions to be determined later by the Commission. 
2. Germany shall create and deliver to the Commis- 
sion in substitution for bonds already delivered or de- 
liverable under Paragraph 12 (c) of Annex 2 of Part 
VIII. (Reparation) of the Treaty of Versailles the bonds 
hereinafter described. 

(A) Bonds for an amount of 12 milliard gold marks 
(£600,000,000). These bonds shall be created and de- 
livered at latest on July 1, 1921. There shall be an 
annual payment from funds to be provided by Germany 
as prescribed in this agreement, in each year from May 1, 
1921, equal in amount to 6 per cent of the nominal value 
of the issued bonds, out of which there shall be paid 
interest at 5 per cent per annum, payable half-yearly on 
the bonds outstanding at any time, and the balance to 
sinking fund for the redemption of the bonds by annual 
drawings at par. These bonds are hereinafter referred 
to as bonds of Series (A). 

(B) Bonds for a further amount of 38 milliard gold 
marks (£1,900,000,000). These bonds shall be created 
and delivered at the latest on November 1, 1921. There 
shall be an annual payment from funds to be provided 
by Germany as prescribed in this agreement in each year 
from November 1, 1921, equal in amount to 6 per cent 
of the nominal value of the issued bonds, out of which 



APPENDIX OF DOCUMENTS 223 

there shall be paid interest at 5 per cent per annum, 
payable half-yearly on the bonds outstanding at any 
time and the balance to sinking fund for the redemption 
of the bonds by annual drawings at par. These bonds are 
hereinafter referred to as bonds of Series {B). 

(C) Bonds for 82 milliards of gold marks (£4,100,- 
000,000), subject to such subsequent adjustment by 
creation or cancellation of bonds as may be required 
under Paragraph (1). These bonds shall be created and 
delivered to the Reparation Commission, without coupons 
attached, at latest on November 1, 1921 ; they shall be 
issued by the Commission as and when it is satisfied that 
the payments which Germany undertakes to make in 
pursuance of this agreement are sufficient to provide 
for the payment of interest and sinking fund on such 
bonds. There shall be an annual payment from funds to 
be provided by Germany as prescribed in this agreement 
in each year from the date of issue by the Reparation 
Commission equal in amount to 6 per cent of the nominal 
value of the issued bonds, out of which shall be paid 
interest at 5 per cent per annum, payable half-yearly 
on the bonds outstanding at any time, and the balance 
to sinking fund for the redemption of the bonds by 
annual drawings at par. The German Government shall 
supply to the Commission coupons for such bonds as and 
when issued by the Commission, These bonds are here- 
inafter referred to as bonds of Series (C). 

3. The bonds provided for in Article 2 shall be signed 
German Government bearer bonds, in such form and in 
such denominations as the Reparation Commission shall 
prescribe for the purpose of making them marketable, 
and shall be free of all German taxes and charges of 
every description present or future. 

Subject to the provisions of Articles 248 and 251 of 



224 A REVISION OF THE TREATY 

the Treaty of Versailles these bonds shall be secured on 
the whole of the assets and revenues of the German Em- 
pire and the German States, and in particular on the 
specific assets and revenues specified in Article 7 of the 
agreement. The service of the bonds of Series (A), 
(B), and (C) shall be a first, second, and third charge 
respectively on the said assets and revenues and shall be 
met by the payments to be made by Germany under this 
Schedule. 

4. Germany shall pay in each year until the redemp- 
tion of the bonds provided for in Article 2 by means of 
the sinking funds attached thereto — 

(1) A sum of two milliard gold marks (£100,000,000). 

(2) (a) A sum equivalent to 25 per cent of the value 

of her exports in each period of 12 months 
starting from May 1, 1921, as determined by 
the Commission; or 
(&) Alternatively an equivalent amount as fixed 
in accordance with any other index proposed 
by Germany and accepted by the Commission. 

(3) A further sum equivalent to 1 per cent of the 

value of her exports as above defined, or alter- 
natively an equivalent amount fixed as pro- 
vided in (&) above. 

Provided always that when Germany shall have dis- 
charged all her obligations under this Schedule, other 
than her liability in respect of outstanding bonds, the 
amount to be paid in each year under this paragraph 
shall be reduced to the amount required in that year to 
meet the interest and sinking fund on the bonds then 
outstanding. 

Subject to the provisions of Article 5, the payments 



APPENDIX OF DOCUMENTS 225 

to be made in respect of Paragraph (1) above shall be 
made quarterly before the end of each quarter, i.e. be- 
fore January 15, April 15, July 15, and October 15 each 
year, and the payments in respect of Paragraphs (2) 
aud (3) above shall be made quarterly, November 15, 
February 15, May 15, August 15, and calculated on the 
basis of the exports in the last quarter but one preced- 
ing that quarter, the first payment to be made November 
15, 1921. 

5. Germany will pay within 25 days from this notifi- 
cation one milliard gold marks (£50,000,000) in gold or 
approved foreign bills or in drafts at three months on 
the German Treasury, endorsed by approved German 
banks and payable in London, Paris, New York, or any 
other place designated by the Reparation Commission. 
These payments will be treated as the first two quarterly 
instalments of the payments provided for in compliance 
with Article 4 (1). 

6. The Commission will within 25 days from this 
notification, in accordance with Paragraph 12 {d), An- 
nex II. of the Treaty as amended, establish the special 
Sub-Commission, to be called the Committee of Guar- 
antees. The Committee of Guarantees will consist of 
representatives of the Allied Powers now represented on 
the Reparation Commission, including a representative 
of the United States of America, in the event of that 
Government desiring to make the appointment. 

The Committee shall co-opt not more than three 
representatives of nationals of other Powers whenever it 
shall appear to the Commission that a sufficient portion 
of the bonds to be issued under this agreement is held 
by nationals of such Powers to justify their representa- 
tion on the Committee of Guarantees. 

7. The Committee of Guarantees is charged with the 



226 A EEVISION" OF THE TREATY 

duty of securing the application of Articles 241 and 
248 of the Treaty of Versailles. 

It shall supervise the application to the service of the 
bonds provided for in Article 2 of the funds assigned 
as security for the payments to be made by Germany 
under Paragraph 4. The funds to be so assigned shall 
be — 

(a) The proceeds of all German maritime and land 
customs and duties, and in particular the pro- 
ceeds of all import and export duties. 

(&) The proceeds of the levy of 25 per cent on the 
value of all exports from Germany, except those 
exports upon which a levy of not less than 25 
per cent is applied under the legislation re- 
ferred to in Article 9. 

(c) The proceeds of such direct or indirect taxes or 
any other funds as may be proposed by the 
German Government and accepted by the Com- 
mittee of Guarantees in addition to or in sub- 
stitution for the funds specified in (a) or (&) 
above. 

The assigned funds shall be paid to accounts to be 
opened in the name of the Committee and supervised 
by it, in gold or in foreign currency approved by the 
Committee. The equivalent of the 25 per cent levy 
referred to in Paragraph (6) shall be paid in German 
currency by the German Government to the exporter. 

The German Government shall notify to the Com- 
mittee of Guarantees any proposed action which may 
tend to diminish the proceeds of any of the assigned 
funds, and shall, if the Committee demand it, substitute 
some other approved funds. 



APPENDIX OF DOCUMENTS 227 

The Committee of Guarantees shall be charged fur- 
ther with the duty of conducting on behalf of the Com- 
mission the examination provided for in Paragraph 
12 (&) of Annex 2 to Part VIII. of the Treaty of Ver- 
sailles, and of verifying on behalf of the said Commis- 
sion, and if necessary of correcting, the amount declared 
by the German Government as the value of German 
exports for the purpose of the calculation of the sum 
payable in each year under Article 4 (2) and the 
amounts of the funds assigned under this Article to the 
service of the bonds. The Committee shall be entitled 
to take such measures as it may deem necessary for the 
proper discharge of its duties. 

The Committee of Guarantees is not authorised to 
interfere in German administration. 

8. Germany shall on demand, subject to the prior 
approval of the Commission, provide such material and 
labour as any of the Allied Powers may require towards 
the restoration of the devastated areas of that Power, 
or to enable any Allied Power to proceed with the 
restoration or development of its industrial or economic 
life. The value of such material and labour shall be 
determined by a valuer appointed by Germany and a 
valuer appointed by the Power concerned, and, in de- 
fault of agreement, by a referee nominated by the Com- 
mission. This provision as to valuation does not apply 
to deliveries under Annexes III., IV., V., and VI. to 
Part VIII. of the Treaty. 

9. Germany shall take every necessary measure of 
legislative and administrative action to facilitate the 
operation of the German Reparation (Recovery) Act, 
1921, in force in the United Kingdom, and of any similar 
legislation enacted by any Allied Power, so long as such 
legislation remains in force. Payments effected by the 



228 A REVISION OF THE TEEATY 

operation of such legislation shall be credited to Ger- 
many on account of the payment to be made by her 
under Article 4 (2). The equivalent in German cur- 
rency shall be paid by the German Government to the 
exporter. 

10. Payment for aU services rendered, all deliveries in 
kind, and all receipts under Article 9 shall be made to 
the Reparation Commission by the Allied Power receiv- 
ing the same in cash or current coupons within one 
month of the receipt thereof, and shall be credited to 
Germany on account of the payments to be made by her 
under Article 4. 

11. The sum payable under Article 4 (3) and the 
surplus receipts by the Commission under Article 4 (1) 
and (2) in each year, not required for the payment of 
interest and sinking fund on bonds outstanding in that 
year, shall be accumulated and applied so far as they 
wiU extend, at such times as the Commission may think 
fit, by the Commission in paying simple interest not 
exceeding 2i/2 per cent per annum from May 1, 1921, 
to May 1, 1926, and thereafter at a rate not exceeding 
5 per cent on the balance of the debt not covered by the 
bonds then issued. No interest thereon shall be payable 
otherwise. 

12. The present Schedule does not modify the pro- 
visions securing the execution of the Treaty of Versailles, 
vrhich are applicable to the stipulations of the present 
Schedule. 

VIII. The Wiesbaden Agreement, October 6, 1921 

This Agreement, signed by M. Loucheur and Herr 
Rathenau at Wiesbaden on October 6, 1921, is a lengthy 
document, consisting of a Protocol, Memorandum, and 
Annex. The effective clauses are to be found mainly in 



APPENDIX OF DOCUMENTS 229 

the Annex. The full text has been published in a British 
White Paper [Cmd. 1547]. This White Paper also con- 
tains (1) an explanatory Memorandum, (2) the De- 
cision of the Reparation Commission, and (3) a Report 
from Sir John Bradbury to the British Treasury. Ex- 
tracts from these three documents are given below. 



1. Explanatory/ Memorandum 

In order to understand the arrangements proposed by 
the Wiesbaden Agreement, it is necessary to bear in 
mind certain provisions of the Treaty of Versailles, the 
application of which is affected by it. 

The Treaty itself provides in the Reparation Chap- 
ter, Part VIII., and in some of its Annexes, for the par- 
tial liquidation of Germany's reparation indebtedness 
by deliveries in kind. The important passages in this 
connection are Paragraph 19 of Annex II. and Annex 
IV., which together make extensive provision for the de- 
livery, through the Reparation Commission, to the Al- 
lied and Associated Powers of machinery, equipment, 
tools, reconstruction material, and, in general, all such 
material and labour as is necessary to enable any Allied 
Power to proceed with the restoration or development of 
its industrial or economic life. 

Germany's obligation being stated in terms of gold 
and not in terms of commodities, provision has neces- 
sarily been made in all cases for crediting Germany, 
from time to time, with the fair value, as assessed by 
the Reparation Commission, of such deliveries. More- 
over, since the proportions received by the respective 
Powers in kind need not necessarily correspond exactly 
with their respective shares in Germany's reparation 
payments, as determined by Inter-Allied agreement, 



230 A KEVISION OF THE TREATY 

provision is further necessarily made in the Treaty to 
render each Power accountable not only to Germany, 
but to the Reparation Commission, for the value of 
these deliveries. Thus, on the one hand, the Treaty 
stipulates as between the Allies and Germany that the 
value of services under the Annexes shall be credited 
towards the liquidation of Germany's general obliga- 
tion, and the Schedule of Payments assigns the value 
of Annex deliveries to the service of the bonds handed 
over by Germany as security for her debt. On the other 
hand, the Treaty provides that for the purpose of equita- 
ble distribution as between the Allies, the value of An- 
nex deliveries shall be reckoned in the same manner as 
cash payments effected in the year, and the Schedule of 
Payments stipulates that the value of the deliveries 
received by each Power shall, within one month of the 
date of delivery, be paid over to the Reparation Com- 
mission, either in cash or in current coupons. 

Further, the Treaty imposes upon the Reparation 
Commission not only the duty of fixing prices, but also 
of determining the capacity of Germany to deliver 
goods demanded by any of the Allies, and, by implica- 
tion, of deciding between the competing demands which 
are made upon that capacity by the Allies themselves. 

The Wiesbaden Agreement provides for the delivery 

by a German company^ to French "sinistres" of "all 

plant and materials compatible with the productive ea- 

* The aprangement under which a German private company is 
to be created to deal directly with the orders without the inter- 
vention of the French and German Governments is intended to 
obviate the delays which experience has showTi to be inseparable 
from the employment of the present machinery. It does not 
appear to have any important bearing on the general financial 
situation, since the deliveries will clearly have to be financed by 
the German Government and will ultimately be paid for by means 
of a reparation credit in account with the German Government. 



APPENDIX OF DOCUMENTS 231 

paeity of Germany, her supply of raw materials and her 
domestic requirements," that is to say, of the articles 
and materials which can be demanded under Annex IV. 
and Paragraph 19 of Annex II., which are, by the terms 
of the Agreement, in so far as France is concerned, vir- 
tually suspended, the obligations of Germany to deliver 
to France under the other Annexes remaining unaf- 
fected. 

Any question as to the capacity of Germany to satisfy 
the requirement of France, and all questions of price, 
are to be settled by a Commission of three members, 
one French and one German, and a third selected by 
common agreement or nominated by the Swiss Presi- 
dent. 

The aggregate value of the deliveries to be made 
under the Agreement, and of the deliveries to be made 
under Annexes III., V. and VI. (hereafter, for the sake 
of brevity, called the "Annex deliveries") in the period 
expiring on the 1st May 1926, is fixed at a maximum 
of 7 milliard gold marks. 

In regard to the Annex deliveries the Agreement in 
no way modifies the Treaty provisions under which Ger- 
many is credited and France debited forthwith with the 
value, but special provisions, which are financially the 
essential part of the Agreement, are made for bringing 
to reparation account the value of the Agreement de- 
liveries. These special provisions are designed to secure 
that Germany shall only be credited on reparation ac- 
count at the time of delivery with a certain proportion 
of them, and that deliveries not thus accounted for, 
which may be called ''excess deliveries," shall be liqui- 
dated over a period of years beginning at the earliest on 
1st May 1926. The provisions themselves are somewhat 



232 A REVISION OF THE TEEATT 

intricate, comprising, as they do, a series of interacting 
limitations, and they require some elucidation. 

(1) In no case is credit to be given to Germany in 

any one year for Annex and Agreement de- 
liveries together to an amount exceeding one 
milliard gold marks. 

(2) In no case is credit to be given to Germany in 

any one year for more than 45 per cent of the 
value of the Agreement deliveries or for more 
than 35 per cent if the value of the Agreement 
deliveries exceeds one milliard gold marks. 

The effect of the above is to prescribe that 55 per 
cent (or, if the Agreement operates successfully, 65 per 
cent) of the value of the Agreement deliveries as a mini- 
mum will be the object of deferred payment by instal- 
ments. If the Agreement deliveries reached really high 
figures, the operation of the milliard limitation would 
make the carry forward much more than 65 per cent. 

The excess deliveries are to be liquidated with interest 
at 5 per cent per annum in 10 equal annual instalments 
as from 1st May 1926, subject to certain conditions : — 

(1) France shall in no case be debited in one year 

for Agreement deliveries with an amount which, 
when added to the value of her Annex deliveries 
in that year, would make her responsible for 
more than her share (52 per cent) of the total 
reparation payments made by Germany in that 
year. 

(2) Agreement deliveries continue after 1st May 

1926, with the same provisions for deferred 
payment. If in any year between May 1926 
and May 1936 the amount (not exceeding 35 



APPENDIX OF DOCUMENTS 233 

or 45 per cent) of the value of that year's 
Agreement deliveries to be credited to Ger- 
many, together with the annual instalment to 
repay the debt incurred in respect of the period 
ending 1st May 1926, exceeds one milliard, the 
excess is to be carried forward from year to 
year until a year is reached in which no such 
excess is created by the payment. But in no 
case shall the amount credited, even if it is less 
than one milliard gold marks, exceed the limit 
laid down by the preceding condition. 

(3) Any balance with which Germany has not been 

credited on 1st May 1936 is to be credited to 
her with compound interest at 5 per cent in 
four half-yearly payments on 30th June and 
31st December 1936 and 30th June and 31st 
December 1937. But, again, these half-yearly 
payments shall not be made if the effect of 
making them would be to exceed the limit laid 
down in Condition 1 above. 

(4) Agreement deliveries continue indefinitely after 

1st May 1936, with power, however, to Ger- 
many to arrest them whenever the execution of 
them would result in France owing more than 
52 per cent of Germany's annual reparation 
payment in respect of Annex deliveries, de- 
ferred payments already matured, and the 35 
or 45 per cent of current deliveries. 

From the above it is to be noted that, while there is 
a limitation for the first five years of the amount of 
Agreement deliveries which can be demanded, there is — 

(1) No point at which the right of France to demand 



234 A REVISION OF THE TREATY 

these special deliveries automatically termi- 
nates. 

(2) No final limitation upon the value of the deliv- 

eries which can be demanded by France during 
the lifetime of the Agreement. 

(3) No definitely prescribed period within which 

France's debt to Germany and to the other 
partners in reparation shall be liquidated. 



It remains necessary to draw attention to one sub- 
sidiary point of a financial character under the Schedule 
of Payments. Part of Germany's annual reparation 
liability consists of the payment of 26 per cent of the 
value of German exports in each period of twelve 
months, and part of the security for the payment con- 
sists of the proceeds of a levy of 25 per cent on the value 
of all German exports. The French Government has 
undertaken to support a request, to be submitted by the 
German Government to the Reparation Commission, for 
the inclusion in the exports which form the basis of 
these calculations of that part only of the value of the 
deliveries made under the Agreement which is credited 
to Germany and debited to France during any particu- 
lar year. 

If it can be assumed that any part of the special de- 
liveries to be made under the Agreement would, in the 
absence of the Agreement, have been diverted to Ger- 
many's ordinary external trade, then the concession 
desired will have the effect of diminishing the annual 
payments made by Germany for the benefit of the Al- 
lies as a whole. 



APPENDIX OF DOCUMENTS 235 

2. Decisio7i of the Reparation Commission on Octoher 
20, 1921, after considering the Franco-German 
Agreement of October 6, 1921 

The French Government, having submitted to the 
Reparation Commission in accordance with Paragraph 3 
of the Memorandum thereto attached the Agreement be- 
tween the representatives of the French and German 
Governments signed at Wiesbaden on the 6th instant, the 
Commission has come to the following decision : — 

(1) It entirely approves the general principles under- 

lying the Agreement whereby special arrange- 
ments are proposed for enabling Germany to 
liquidate the largest possible proportion of her 
reparation obligations in the form of goods and 
services, more especially with a view to the 
speedier restoration of the Devastated Regions. 

(2) At the same time, it considers that the Agree- 

ment involves certain departures from the pro- 
visions of Part VIII. of the Treaty of Versailles, 
notal)ly Article 237, Paragraphs 12 and 19 of 
Annex II. and Paragraph 5 of Annex IV. 

(3) As the Commission has no power to authorise such 

departures, it decides to refer the question to 
the Governments represented on the Commis- 
sion, with a copy of the Memorandum and its 
Annex, recommending a favourable examina- 
tion of them. 

(4) The Commission recommends that reasonable fa- 

cilities for deferred payment in respect of the 
exceptional volume which, if the arrangements 
are successful, the deliveries in kind to France 
are likely to assume during the next few years, 
should be accorded to France, subject to any 



236 A REVISION" OF THE TREATY 

safeguards which the Allied Governments may 
regard as necessary to protect their respective 
interests. 

3, Concluding Recommendations of Sir John Brad- 
bury's Report to the British Government {October 
26, 1921) 
The safeguards which are envisaged as necessary by 
my Italian and Belgian colleagues on the Reparation 
Commission and myself, and for which we presume that 
our respective Governments will desire to stipulate 
are — 

(1) That a limit of time should be laid down after 

the expiration of which no new deferment of 
debit should be permitted and the liquidation 
of the existing deferred debits should commence 
to be made by regular annual instalments. 

The precise length of this period should be determined 
upon an estimate of the time necessary to carry out the 
main work of reconstruction, regard being had to the 
time required by Germany to effect the necessary sup- 
plies. In view of the delays which are inevitable in 
regard to operations of the magnitude of those contem- 
plated, the prescribed period might be reasonably some- 
what longer than the four and a half years' initial 
period under the agreement, but it should not exceed 
seven years. 

(2) That in no circumstances should the aggregate 

amount for which debit against France for the 
time being stands deferred be allowed to ex- 
ceed a prescribed amount, say, 4 milliard gold 
marks. 

(3) That a provision should be inserted for the pay- 

ment by France to the general reparation ac- 



APPENDIX OF DOCUMENTS 237 

count from time to time (within the limits of 
the deferred debits for the time being outstand- 
ing) of any amounts which may be necessary 
to secure that the other Allies shall receive their 
proper proportions of the amounts due from 
Germany under the Schedule of Payments. 

Subject to the introduction of these safeguards, to 
which it would not appear that legitimate exception 
could be taken, the arrangements contemplated by the 
agreement may be expected to accelerate the solution of 
the Reparation problem on practical lines in a manner 
advantageous to France without prejudicing the inter- 
ests of other Powers, and it is upon this ground that 
the Reparation Commission has unanimously recom- 
mended them for favourable examination by the Allied 
Governments. 

If the Allied Governments approve the general 
scheme, subject to whatever safeguards they may decide 
to be necessary, there will remain certain subsidiary 
points for the Reparation Commission to consider — 
amongst other: — 

(1) The proposed omission of the excess deliveries 

from the index figure determining the annual 
liability under the Schedule of Payments, until 
such time as these deliveries are finally brought 
to account for reparation purposes. 

(2) The special arrangements for substitution in re- 

spect of articles of which France is entitled to 
restitution by identity, involving in certain 
cases money payments ; and 

(3) The special arrangements in regard to the delivery 

of coal and the prices to be credited and deb- 
ited, which in several particulars affect the 
interest of other Powers. 









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APPENDIX OF DOCUMENTS 239 

(B) Advances hij the British Government to Other 
Governments (as on March 31, 1921) 

Allied Governments ' — 

France £557,039,507 6 8 

Kussia 561,402,234 18 5 

ftalv ■ 476,850,000 

Belgium ■■.". 103,421,192 8 9 

Serbia 22,247,376 12 5 

Montenegro 204,755 19 9 

Rumania 21,393,662 2 8 

Portugal 18,575,000 

Greece 22,577,978 9 7 

^^'S^^^ ^'«"^^ _!:!!!:!^i-i-^ £1,787.262,007 is 3 

Loans for Relief — 

Austria £8,605,134 9 9 

Rumania 1,294,726 8 

Serb-Croat-Slovene 

Kingdom 1,839,167 3 7 

Poland 4,137,040 10 1 

Czecho-Slovakia 417,392 3 3 

Esthouia 241,681 14 2 

Lithuania 16,811 12 4 

Latvia 20,169 1 10 

Hungary 79,997 15 10 

Armenia 77,613 17 2 

Inter-Allied Commission 

on the Danube.... 6,868 17 6 ^^^^^^^^^ ^ ^ 

Other Loans { Stores, etc. ) — 

Czecho-Slovakia £2,000,000 

ArniPTiia 829,634 9 3 

^^^^^^^ ___J 2,829,634 9 5 



Total £1,806,828,245 13 



» These accounts include interest, except in the case of Belgium and 
Serbia from whom interest has not been charged, and in the case of 
Russia, where no interest has been entered up smce January 1918. 



INDEX 



Allied debts, 170 f., 183, 193 f., 

238 
Armistice negotiations, 145, 

148 f. 
Army of Occupation, expenses 

of, 84 n., 133 f., 140, 191 
Austria, 130, 190, 191 

Balfour, A. J., 148 n. 

Baruch, 72 n., 106 n., 153, 155, 

56, 159, 160 ». 
Belgian priority, 135-6, 139-40, 

190, 204 
Reparation claims, 123-4, 197 
Boulogne Conference, 19 
Boyden, 112, 130 
Bradbury, Sir John, 93, 95, 

128 n,. 129, 216 
Brenier, 109, 110, 118 n. 
Briand, 24, 25, 27, 41, 69, 114 
British Reparation Claims, 124, 

211 
Brockdorff-Rantzau, 29 
Brussels Conference (Experts), 

22-3 
Brussels Conference (League of 

Nations), 86 
Brussels Conference (Premiers), 

19 
Bulgaria, 130, 190 

Clemenceau, 84 n., 108, 149, 150 
Coal, 44 f., 75, 98 
Cunliflfe, Lord, 72, 156 
Curzon, Lord, 57 n. 

D'Abernon, Lord, 31 
Decisions of London, 95 
Disarmament of Germany, 16-19 



Dominion Prime Ministers' Con- 
ference, 139 
Doumer, 111, 141 
Dubois, 110, 115»., 128 w. 
Dulles, John Foster, 156-7 



East Prussia (plebiscite), 11 

Economic Consequences of the 
Peace, 5, 39, 45, 51, 55 n., 
71, 72, 74 w., 107, 108, 114, 
119, 124, 126 n., 127 n., 144, 
146 «., 166, 173 

Elsas, Dr. Moritz, 88-9, 92 ». 

Exports, German, 79 f., 99, 
165 f. 



Financial Agreement of Paris 
(Aug. 1921), 135, 141 f. 

Foch, Marshal, 31, 33, 57, 148 «. 

Forgeot, 70 n. 

Fournier-Sarlov&ze, 116 n. 

Frankfurt, Occupation of, 15, 
57 

French Reparation Claim, 107 f ., 
117 f., 210 

George, Lloyd, 1, 17, 18, 21, 27, 
30, 33, 41, 84«., 121, 138 n., 
139, 150, 155, 179, 198 

German Budget, 81 f. 

German Counter-proposal 
(March 1921), 28-30 

German Counter-proposal (April 
1921), 36 f., 215 f. 

German individual income, 86 f. 

German property in United 
States, 77, 143 

Gladstone, 6 



240 



INDEX 



241 



Guarantees, Committee of, 68 f ., 
225 f. 

Haig, Sir Douglas, 148 w. 
Harding, President, 171 
Heiclien, Dr. Artliur, 87 
Heitiericb, 88, 90 
History of the Peace Conference 

of Pans, 147 n., 152 »., 

160 w. 
House, Col., 148 n. 
Hughes, W. M., 156 
Hungary, 192 
Hymans, 150 
Hythe Conference, 18 

Invasion of Germany, 31, 32, 36 
Italian Reparation Claims, 127, 

211 
Italy, 190 

Kaiser, trial of, 14 
Kapp, " Putsch," 15 
Klotz, 24, 72, 109, 111, 147, 
151 f. 

Lamont, J. W., 106 n., 161, 

162 «. 
Lansburgh, Dr, Albert, 87 
Law, Bonar, 150 
League of Nations, 12, 61, 188 
Leipzig trials, 15 
Levy, Raphael-Georges, 118 n. 
Leygues, 21, 24 
Lignite, 55 

London Conference I., 28, 34 
London Conference II., 40 
London Settlement, 64 f ., 72, 73, 

81, 84 m., 130, 188 f., 221 
London Ultimatum I., 30, 35, 

213 
London Ultimatum II., 16, 19, 

31 n., 42, 44, 57. 219 f. 
Loucheur, 31. 92, 95, 109, 110, 

112 n., 117, 120 
Loucheur-Rathenau Agreement; 

vide Wiesbaden Agreement 

Mark Exchange, 81, 100 f. 



Mercantile Marine of Germany, 

16, 137 
" Mermeix," 148 »., 149 n. 
Millerand, 18, 20 

Newspaper opinion, 7 
Nitti, 18 

Occupation, Army of, 84 n., 133, 

140 
Occupation of Germany, 188, 

214, 219 
Occupation of Germany, legality 

of, 32, 41, 57 f. 
Orlando, 150 

Paris decisions, 18, 26, 32, 34, 

39, 40, 57, 207 
Payiiient in kind, 97 f., 168 
Pensions, 125, 146 f., 185 
Poincare, 24, 108, 128, 129 
Poland, 192 f. 
Poland's coal, 52 
Private opinion, 7, 8 

Rathenau, 92, 95 

Reparation Claims, 126 f., 210 f . 

Reparation and International 
Trade, 163 f. 

Reparation Bill, 39, 106 f., 185 

Reparation Bonds, 58 f., 101, 
207, 221 

Reparation Commission, 21, 32, 
35, 45, 47. 59, 61, 66 «., 67, 
68, 73, 93. 106, 110, 118, 
126, 156, 221 f., 235 

Reparation Commission, Assess- 
ment of, 27, 127 f., 219 

Reparation, Estimates of, 39, 72 

Reparation Receipts, division 
of, 1.38 f., 203 

Restitution, 16, 149, 150 

Revision of Treaty, 185 f. 

Ruhr, Occupation of, 36, 41, 58, 
204 

Ruhr riots, 15 

San Remo Conference, 15, 18 
Sanctions, 32, 36, 57 n. 



242 



INDEX 



Schlesvig (plebiscite), 11 
Simons, 28, 29, 32, 38 n., 213 
Smuts, General, 160 
Sonino, 150 
Spa Coal Agreement, 45 f., 102, 

133, 136, 205 
Spa Conference, 18, 19, 45, 138, 

203 
Sumner, Lord, 156 

Tardieu, 24, 27, 60, 72, 106 n., 
107 n., 108 w., 114 «., 117, 
120 »., 121 M., 138, 147, 
148 n., 149 n., 150«.., 151, 
153 

The Times, 18, 20, 22, 27, 32, 
55 n., 100, 110, 117 ». 



United States 36, 38, 78 n., 143 
United States and Inter-Allied 

Debts, 170, 183, 194 f., 238, 
United States, Treaty rights of, 

towards Germany, 77, 78, 

130, 140, i42 
Upper Silesia, 11, 30, 32, 39, 52, 

54 

Westphalian riots, 15 

Wierzlicki, 53 

Wiesbaden Agreement, 76, 92 f ., 

187, 211 f. 
Wilson, President, 146 f., 151 f ., 

157, 160, 161-162 

Young, Allyn, 5 n. 



BY THE SAME AUTHOR 

THE ECONOMIC CONSEQUENCES OF 
THE PEACE 

First published in London, December, 1919, and in New YorJe, 
January, 1920. Afterwards reprinted in French, German, Italian, 
Spanish, Dutch, Flemish, Danish, Swedish, Rumanian, Russian, 
and Chinese, these editions, of ichich the chief are mentioned^ 
below, amounting in all to 140,000 copies. 

1. The Economic Consequences op the Peace. 

London: Macmillan and Co., 1919. 

2. The Economic Consequences of the Peace. 

London: Labour Research Department, 1920. 

[Out of print.] 

3. The Economic Consequences of the Peace. 

New York : Harcourt, Brace and Co. 1920. $2.50. 

4. Les Consequences economiques de la Paix. Tra- 

duit de TAnglais par Paul Franck. 

Paris: Editions de la Nouvelle Eevue Francaise. 1920. 

5. Die wirthschaftlichen Folgen des Friedensver- 

tragens. tjbersetzt von M. J. Bonn und C. 
Brinkmann. 

Miinchen: Duncker und Humblot. 1920. 

6. De economische Gevolgen van den Vrede. Met 

een Inleiding van Mr. G. Visserig. 

Amsterdam: Uitgevers-Maatschappij Elsevier. 1920. 

7. Le Conseguenze economiche della Pace. Tradu- 

zione di Vincenzo Tasco. Prefazione di Vincenzo 

GlUFFRIDA. 

Milano: Fratelli Treves. 1920. 

8. Fredens Ekonomiska Foljder. Oversattning av 

Evert Berggren. 

Stockholm : Albert Bonnier. 1920. 



[2] 

9. Las Consecuencias economicas de la Paz. Tra- 

duceion por Juan U'Sa. 

Madrid: Calpe. 1920. 

10. De economische Gevolgen van den Vrede. 

Vlaamsehe Uitgave vertaing van G. "W. 
Brussel: Uitgeverij Ons Vaderland. 1920. 

11. Urtmarile economice a le Pach. 

Bucaresti: Editura. Viata Romineasca. 1920. 

12. Ekonomitjeskija Posledstvija Mira. 

Stockholm: W. Tullbergs Boktryckeri. 1921. 

PKESS NOTICES 

British 

THE NATION, Dec. 13, 1919.— "This is the first heavy shot that 
has been fired in the war which the intellectuals opened on the 
statesmen the moment they realized what a piece of work the 
Treaty was." 

WESTMINSTER GAZETTE, Dec. 20, 1919.— "Mr. Keynes has 
produced a smashing and unanswerable indictment of the economic 
settlement. . . . It is too much to hope that the arbiters of our 
destinies will read it and perhaps learn wisdom, but it should do 
much good in informing a wide section of that public which will 
in its turn become the arbiters of theirs." 

SUNDAY CHRONICLE, Dec. 21, 1919.— "No criticism of the 
Peace which omits, as Mr. Keynes seems to me by implication to 
omit, the aspect of it not as a treaty, hut as a sentence, has any 
right to be heard by the European Allied peoples." 

THE SPECTATOR, Dec. 20, 1919.— "The world is not governed 
by economical forces alone, and we do not blame the statesmen at 
Paris for declining to be guided by Mr. Keynog if he gave them 
such political advice as he sets forth in his book." 

THE TIMES, Jan. 5, 1920. — "Mr. Keynes has written an ex- 
tremely 'clever' book on the Peace Conference and its economic con- 
sequences. ... As a whole, his cry against the Peace seems to us 
the cry of an academic mind, arcustomed to deal with the abstrac- 



[3] 



tions of that largely metaphysical exercise known as 'political 
economy,' in revolt against the facts and forces of actual political 
existence. . . . Indet-d, one of the most striking features of Mr. 
Keynes's book is the political inexperience, not to say ingenuous- 
ness, which it reveals. . . . He believes it would have been wise 
and just to demand from Germany payment of £2,000,000,000 'in 
tinal settlement of all claims without further examination of par- 
ticulars.' " 

THE ATBEN^VM, Jan. 23, 1920.— "This book is a perfectly 
well-equipped arsenal of facts and arguments, to which every one 
will resort for years to come who wishes to strike a blow against 
the forces of prejudice, delusion, and stupidity. It is not easy to 
make large numbers of men reasonable by a book, yet there are no 
limits to which, without undue extravagance, we may not hope 
that the influence of this book may not extend. Never was the 
case for reasonableness more powerfully put. It is enforced with 
extraordinary art. What might easily have been a difficult trea- 
tise, semi-official or academic, proves to be as fascinating as a 
good novel." 

FORTNIGHTLY REVIEW, March 1, 1920.— "Mr. Keynes's book 
has now been published three months, and no sort of official reply 
to it has been issued. Nothing but the angry cries of bureaucrats 
have been heard. No such crushing indictment of a great act of 
international policy, no such revelation of the futility of diplomats 
has even been made." 

TIME8 LITERARY SUPPLEMENT, April 29, 1920.— "Mr. 
Keynes . . . has violently attacked the whole work of those who 
made the Treaty in a book which exhibits every kind of ability 
except the political kind. . . . Mr. Keynes knows everything ex- 
cept the (>lements of politics, which is the science of discovering, 
and the art of accomplishing, the practicable in public affairs." 

TIMES ("Annual Financial and Commercial Review"), Jan. 28, 
1921. — "The almost unhealtliy greed with which Mr. Keynes's 
book on The Economic Consequences of the Peace was devoured in 
a dozen countries was but a symptom of the new desire to appre- 
ciate, and, if possible, to cope with, the economic consequences not 
only of tlu" peace but of the war." 

LIVERPOOL COURIER, Feb. 2, 1921.— "In the eyes of the 
world — at least, of the world that is not pro-German — the repara- 
tion costs are wholly inadequate. It is true that in the eyes of 
Mr. J. M. Keynes it is wicked to charge Germany with the cost of 
war pensions, but we imagine that the average man with a simple 
sense of simple justice does not agree with Mr. Keynes." 

"Realist" in the ENGLISH REVIEW, March 1921.— "The 
operation of indemnity-payment must be followed through to its 



remorseless end. . . . The cry 'Germany must pay' has still a good 
healthy sound about it." 

ENGLISH REVIEW, June 1921.— "What Mr. Maynard Keynes 
predicted in his remarkable book is coming only too true. All over 
Europe the nations are standing to arms, thinking boundaries, 
while trade languishes, production stagnates, and credit lapses 
into the relativities." 

American 

Joseph P. Cotton in the EVENING POST, New York, Jan. 30, 
1920. — "Mr. Keynes's book is the first good book on peace and the 
reconstruction of Europe. The writing is simple and sincere and 
true ... a great book with a real message." 

Paul D. CBAVAxn in the SDN AND NEW YORK HERALD, 
Feb. 2, 1920. — "No English novel during or since the war has had 
such a success as this book. It should be read by every thoughtful 
American. It is the first serious discussion of the Peace Treaty 
by a man who knows the facts and is capable of discussing them 
with intelligence and authority." 

Haeold J. Laski in the NATION, New York, Feb. 7, 1920.— 
"This is a very great book. If any answer can be made to the 
overwhelming indictment of the Treaty that it contains, that an- 
swer has yet to be published. Mr. Keynes writes with a fullness 
of knowledge, an incisiveness of judgment, and a penetration into 
the ultimate causes of economic events that perhaps only half-a- 
dozen living economists might hope to rival. Nor is the manner 
of his book less remarkable than its substance. The style is like 
finely-hammered steel. It is full of unforgettable phrases and ot 
vivid portraits etched in the biting acid of a passionate moral 
indignation." 

F. W. Taussig, Harvard University, in the QUARTERLY 
JOURNAL OF ECONOMICS, Feb. 1920.— "Mr. Keynes needs no 
introduction to economists. The high quality of his work is 
known. This book shows the sure touch, the wide interests, the 
independent judgment, which we expect. It shows, also, fine spirit 
and literary skill. . . . Coming to the economic provisions of the 
Treaty, I find myself in general accord with what Mr. Keynes says. 
He makes out an estimate of what Germany can do in the way of 
reparation. . . . The maximum cannot, in his judgment, exceed 
ten billions of dollars. Some such figure, it is not improper to say, 
was reached independently by Professor A. A. Young in his esti- 
mates for the American financial advisers." 

FINANCIAL WORLD, New York City, Feb. 16, 1920.— "There is 
a thousand dollars of information in it for the average business 
man." 



[5] 



Feank a. Vandeelip in CHICAGO NEWS, March 3, 1920.— "I 
regard it as the most important volume published since the Armis- 
tice. It is certain to have a profound efiect on world thought. It 
is a deep analysis of the economic structure of Europe at the out- 
break of the war, a brilliant characterisation of the Peace Confer- 
ence, a revealing analysis of the shortcomings of the Treaty, a dis- 
section of the reparation claims, done with the scientific spirit and 
steadiness of hand of a great surgeon, a vision of Europe after the 
Treaty, which is the most illuminating picture that has yet been 
made of the immediate situation on the Continent, and, finally, 
constructive remedial proposals. Every chapter bears the imprint 
ot a master hand, of a mind trained to translate economic data, 
and of absolutely imfaltering courage to tell the truth." 

Alvin Johnson in the NEW REPUBLIC, April 14, 1920.— 
"There has been no failure anywhere to recognise that Keyifts's 
Economic Consequences of the Peace requires an 'answer.' Too 
many complacencies have been assailed by it. . . . What progress 
are his critics making in their attack on it? . . . There is sur- 
prisingly little effort made by American reviewers to refute the 
charge that the Treaty is in many respects in direct violation of 
the preliminary engagements, nor is anywhere a serious attempt 
made to show that those engagements were not morally binding. 
. . . The critics have not seriously shaken Keynes's characteriza- 
tion of the Treaty. They have not been able to get far away from 
agreement with him as to what the Treaty should have been. 
They admit the desirability of revision." 

DETROIT FREE PRESS, Nov. 21, 1921.— "Only once have I 
seen Viviani go into action gradually. It was after his last trip 
to the United States. He was talking in a subdued conversational 
tone when suddenly he thought of John Maynard Keynes's book, 
The Economic Consequences of the Peace. His face, hitherto mo- 
tionless, twitched a little. His words accelerated slowly. The 
current of his emotion spread curiously through the muscles of 
his whole body, until the figure which had been relaxed from head 
to foot became tense in every fibre. In a moment he was de- 
nouncing, with the sonorous blast of his anger, the book which he 
said he had encountered in every country in the New World, as 
'a monument of iniquity,' a monster which confronted him every- 
where in South or North America, and which for some (to him) 
incredible reason everyone seemed to believe as the gospel truth 
about the pact of Versailles." 









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